ISM/OSM yet again

RustyShackleford said:
Not much talk about ISM/OSM lately (like, in years). Seemed like they were on glide-path to maturity in a couple years. But I just noticed that prices have been falling over the last few months, and especially the last few days. Any ideas what's up ?
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Likely a combination of significant widening in high yield spreads, low CPI (reducing cash yield), and the revelation that NAVI (the issuer of these bonds) is potentially in the sights of the CFPB over student loan servicing. I would guess that they are too short at this point to really be at risk of default, but stranger things have happened.
 
Good to see the discussion here. I almost pulled the trigger on some more ISM at $21.30 ish (still holding 600 shares from back in the day). Then saw the nonsense about NAVI and the uncertainty with them.

The yield to maturity was over 10% for ISM and OSM in the last week. Pretty crazy yields for something that matures in the next couple years unless it's jam packed with risk.

I didn't bite but it sure was tempting. I also found out you can't buy these securities online at Fidelity. I called customer service and they said you have to call in to buy because people were mistaking ISM/OSM for ETFs. WTF.
 
Yeah, I was tempted too.

Pretty crazy resurrecting a thread that's been inactive for over 2 years !
 
FUEGO said:
The yield to maturity was over 10% for ISM and OSM in the last week. .
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That sounds high. How did you come up with that?

Ref the risk...... When most of the earlier discussions were taking place on ISM/OSM, they were issued by SLM and the rating was BBB+. Now they're issued by NAVI and the rating is BB. Still, it does seem like the time to maturity is short enough that the default risk is low as brewer mentioned.

I still own a bit of both. Avg cost is in the low teens and I haven't wanted to take the cap gain. It was tempting to sell when they both went almost to PAR a while back though....... At this stage, I'll most likely wait for maturity and collect the $25.
 
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I still own some of these also. Actually had a GTC sell order in for 24.90 for some time but it never was executed (but so close). They are in an IRA.
I've been tempted recently but haven't pulled the trigger.
 
youbet said:
That sounds high. How did you come up with that?
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Dunno. Some online calculator. ISM was trading at 21.30 or so which would give you a 17% return at maturity. Add in the 3% or so coupon (2.05% real plus CPI of about 1%). Must be close to 10% YTM, can't recall the exact %.

OSM was an even better deal in terms of YTM because the maturity date is only about 18 months away. I was looking at OSM when it was trading under 22 for a brief moment. So tempted to bite at that level.
 
What do people think about the ownership of ISM by Navient ? I didn't realize this had happened until I clicked on ISM in my yahoo portfolio. Oddly, OSM still shows as SLM Corp.
 
RustyShackleford said:
What do people think about the ownership of ISM by Navient ? I didn't realize this had happened until I clicked on ISM in my yahoo portfolio. Oddly, OSM still shows as SLM Corp.
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Not a huge deal. In less than 2 years we'll have our money back, right? :) I almost bought some more in the past 6 months when it dipped to $21.xx. ISM and OSM are both trading close to par so it doesn't seem like a lot of credit risk is priced in right now.
 
ISM seems consistently about 50c lower these days. Yet it gives you this great 2% real return for a year longer (IOW, about twice as long, starting now). Seems like that's a good bit of risk priced in: double the remaining time for maturity, for something bad to happen.

It's pretty interesting to do a comparison plot of ISM and OSM. Here's the last year (OSM is red, ISM is black). ISM is a lot more volatile. SORRY: can't seem to upload image of comparison plot.
 
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The lower price is because the yield to maturity should be about the same on the two issues. You'll get ~$0.50 extra when the OSM is redeemed in about a year (versus market price today). You'll get ~$1 when ISM is redeemed in two years. Coupon is about the same.
 
Dunno if anyone here still owns or cares about these (since OSM maturing very soon, ISM in a year). But the 2016 dividend payments look too low to me. Anyone care to check my math ? Left hand column is per/share payment I computed, right-hand is what I received (for Jan thru Dec):

$0.042760 $0.042713
$0.047149 $0.047027
$0.050686 $0.050553
$0.059017 $0.058867
$0.070337 $0.070140
$0.065138 $0.064966
$0.059641 $0.059490
$0.067417 $0.067228
$0.065233 $0.065048
$0.062789 $0.062621
$0.061259 $0.061090
$0.063998 $0.063834

Not much, amounting over all of 2016 to about a $2.70 shortfall on my 1500 share position. Still, makes me wonder if something fishy is going on. Reminds me of a friend of friend who was working on GIS systems in school, and thought he'd determined that highway contractors were very slightly, but consistently, over-billing the state for miles of road work. (Dunno what ever became of that).

Only thing I can figure is that month-to-month inflation from Sep'14 to Sep'15, which would determine Jan'16 interest payment, was negative, and somehow I'm not allowing for how that might propagate over the remaining of 2016's payments properly. I don't think so though: unless the month-to-month is more negative than the bond's real interest rate (2.05% for ISM), its negativity don't signify).

BTW, I have a huge sense of deja-vu on this, so if I've had this issue before, and was set straight, please be gentle.
 
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Rusty, I own almost 3,000 shares of PFK, which is a very similar type issue from Prudential. It is CPI, Y over Y plus 2.4% kicker, so it will pay fractionally better. It is now in an up cycle. 6 plus cents two months ago, 7 plus cents last month, and went over 8 cents this divi payable 1/10. This trend should continue due to falling base CPI comparison number for the next several months. Since PFK trails by 3 months , I already know CPI rate will be 25 basis points higher in 2 months than this past divi payment. So yield will modestly continue higher.
 
RustyShackleford said:
Dunno if anyone here still owns or cares about these (since OSM maturing very soon, ISM in a year). But the 2016 dividend payments look too low to me. Anyone care to check my math ? Left hand column is per/share payment I computed, right-hand is what I received (for Jan thru Dec):

$0.042760 $0.042713
$0.047149 $0.047027
$0.050686 $0.050553
$0.059017 $0.058867
$0.070337 $0.070140
$0.065138 $0.064966
$0.059641 $0.059490
$0.067417 $0.067228
$0.065233 $0.065048
$0.062789 $0.062621
$0.061259 $0.061090
$0.063998 $0.063834

Not much, amounting over all of 2016 to about a $2.70 shortfall on my 1500 share position. Still, makes me wonder if something fishy is going on. Reminds me of a friend of friend who was working on GIS systems in school, and thought he'd determined that highway contractors were very slightly, but consistently, over-billing the state for miles of road work. (Dunno what ever became of that).

Only thing I can figure is that month-to-month inflation from Sep'14 to Sep'15, which would determine Jan'16 interest payment, was negative, and somehow I'm not allowing for how that might propagate over the remaining of 2016's payments properly. I don't think so though: unless the month-to-month is more negative than the bond's real interest rate (2.05% for ISM), its negativity don't signify).

BTW, I have a huge sense of deja-vu on this, so if I've had this issue before, and was set straight, please be gentle.
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Are you saying that the total you received was short by $2.70:confused:

One possibility is that it is probably 12 30 day months... or a total of 360 days....
 
Rusty, Did you apply the formula that is used in the prospectus? Also, are you using correct base month comparisons when doing computations? OSM is like PFK it trails 3 months... So Jan divi would be based off Oct to Oct CPI index change, plus the monthly fractional payout of the 2% kicker.
 
Texas Proud said:
Are you saying that the total you received was short by $2.70:confused:
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Yes, short $2.70 in interest payments for all of 2016, for a position of $37,500 face value. Fairly ridiculous to be concerned, really. But if they're doing something fishy, it'd be nice to know.
One possibility is that it is probably 12 30 day months... or a total of 360 days....
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I wrote a spreadsheet years ago, to compute interest payments for ISM/OSM and some various individual TIPS issues. All I have to do is to enter each month's CPI-U figure. I'm pretty sure my inflation numbers are correct, because it gets the TIPS coupon payments correct to the penny.

For ISM, it's always been off by a penny or two on each month's interest payment (for my entire 1500 share holding), but if I add up over a whole year, the total is still only off by a few pennies - not a few dollars. IOW, a penny too big one month and too small the next, some nuance of how it computes each month's amount (maybe the twelve 30-day month thing). All I can think is, somehow they started doing the months differently, so it's weighing the months with smaller year-to-year inflation amounts a little higher. I guess I could play with the spreadsheet and see if I can match the numbers I'm being paid.
 
Whoa, this is weird. I changed the spreadsheet to assume 12 equal length months, and now the total (for all 1500 shares over the whole of 2016) is only off by 35 cents (instead of $2.71). However ... the difference between computed and actual payments for individual months are now much larger (like a buck or so, whereas before, the actual payments were fairly consistently about 20-25 cents smaller than the computed ones).

I also checked 2015 numbers, and the computed and actual payments never differed by more than $0.02, usually just a penny, and the year's total was off by a penny. Maybe somehting do with ISM now showing up as owned by BNPP instead of SLM, whatever BNPP is and whenever that happened.
 
RustyShackleford said:
Whoa, this is weird. I changed the spreadsheet to assume 12 equal length months, and now the total (for all 1500 shares over the whole of 2016) is only off by 35 cents (instead of $2.71). However ... the difference between computed and actual payments for individual months are now much larger (like a buck or so, whereas before, the actual payments were fairly consistently about 20-25 cents smaller than the computed ones).

I also checked 2015 numbers, and the computed and actual payments never differed by more than $0.02, usually just a penny, and the year's total was off by a penny. Maybe somehting do with ISM now showing up as owned by BNPP instead of SLM, whatever BNPP is and whenever that happened.
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Whoever 'owns' it does not matter... there is a trust instrument that has to be followed...

What I would look at is if the trustee changed... it should not matter, but if there is a new trustee because the owner changed they might not be using the correct numbers from prior years...

Look to see if it is 30 day months... and also look to see when the calculation is supposed to be made... do they publish the rates (they should)... check yours against the trustee....

BTW, you can call the trustee and ask them questions... sometimes it might be a bit hard to get the correct one, but they should be available for questions...
 
Dunno. I sold all my ISM when it hit par. Too bad I didn't wait till it was selling for $0.70 over par!
 
Well, OSM matured at par ($25) on Wednesday. I still have a fairly sizeable position in ISM which matures in January. For those who have held onto these securities through the ups and downs, they have turned out to be a pretty good investment. Even though still rated below investment grade, they never missed an interest payment. My thanks to Brewer for pointing these out 10 years ago.
 
That ISM is trading above par if you're interested in selling for a quick ~2% profit.
 
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