Opinions on these bonds

[MichealKnight]

I posted similar once before and I thought it was a quality discussion hence I'll do it again. Actually got a lovely email from someone saying they always wanted to ask this but were shy so I guess I'm the Union Steward of the Yum-Yum section of the class.

I am *not* trying to be lazy and not do homework. This is not "tell me if I should buy these bonds".....this is more about, I am trying to learn how experienced bond investors look at a bond and decide whether to invest or not. So here goes....

1.)Discover Financial

254709AK4/ US254709AK45
Baa2 Moody. BBB-S&P

Price: 97.264............ 6.803 YTM. 6.803 YTW
Price: 96.995 (written in red). 7.204

Callable 8/24@100
Maturity: 11/24

2.)Capital One Fin Corp

14040HBT1/ US14040HBT14
Baa1/ BBB

Price: 97.003......................6.468 YTM. 6.468 YTW
Price: 96.863 (in red)

Callable 9/24@100
Maturity: 10/30/24@100


The "written in red' numbers I can't figure out what that refers to.


But as a card-carrying layman....... I interpret the above as:

Ok, loan money to Capital One. As long as I don't sell it before 9/24...... on 9/24 they will have bought my bonds back@100....and that, plus the coupon rate I get.....will mean I got an annualized return of 6.48%

So again fully admitting I'm a layman.....I conclude that ok....so I'm getting 5.3-5.5 for no risk gov't bonds. No state tax (PA 3%)so effectively it's perhaps 5.7%

So it's 0.70%-1.00% MORE in return for taking a risk.

Not much risk premium but I am asking myself: Just really how much is the risk? Yes, Discover has had problems but I don't see Discover going bankrupt any time soon.

Ditto, Capital One. Ok, people default on credit cards and car loans but how is that enough to put in under anytime soon?

Hence - it's only 1% more return - but if I'm betting on Discover or CapOne being around a few more years I sort of feel my only risk is something cataclysmic a la Countrywide Mortgages.

Would love to hear people's thought process here. Thanks.

 

[pb4uski]

+1 For one year money those are attractive yields.

Not sure about the red color... can you post a screenshot?

I would think that either company being unable to pay or refinance the debt in 1 year is very remote... to the point of being negligible. That said, I have a fixed dollar limit for any issuer for corporate bonds... suspenders in addition to belts (ratings).

If you're a little more adventurous you might want to check into ALL-B, a callable Allstate floating rate preferred stock that is yielding north of 8%.

 

[Winemaker]

Perhaps red means cost/outflow? Some programs show a - on outflows.

 

[nelsonowe]

I bet the red is the bid (the price someone is willing to pay to buy this bond from a seller. Often, there is no bid price.) The price you'd pay to buy is the ask - it's a little higher and the difference between the two is called the spread, which is more or less the profit the dealer would make.
This screenshot below is from Fidelity. The bid (sell) is $96.980 and the ask (buy) is $97.293.
Also remember that there is commission you pay, too. At Fidelity, it's $1 per bond (one bond being $1000 face value). With very short maturities, the commission can actually lower your yield substantially. The only way I know of to check the yield including commission is to start an order and preview it. The actual yield is shown there. Be careful NOT to unwittingly click Buy on the preview screen - use Cancel or Edit!

 

[MichealKnight]

Thanks for replies. I am not sure how to post a screenshot, I tried all the icons and closest I got was to type in the url when what I have is a screenshot. Anyhow the "red" I describe - the screen looks similar to what nelson owe posted.