Had you bought the bonds of investment bank Jefferies Group just a few years ago, you would have made a killing. Less than two years ago, its bonds that mature July 15, 2019 (Cusip 427319af9), were yielding over 10%. A lot has changed since then with Leucadia National (LUK) buying out all shares. The bonds now yield about 3.5%. You are not going to get rich but it beats the heck out of the 0.902% T-bonds due in July 2019.
Though these bonds are not guaranteed by Leucadia, there is an implied guarantee that big brother will step in if anything happens to Jefferies. This happened in 2011 when fears of Jefferies' European bond exposure drove down its equity and bond values. A link from Seeking Alpha from November of 2011 details the situation.
Jefferies does have some longer-dated bonds but investors face duration and convexity risk should interest rates rise. The 2021s yield 4% and the 2027s yield 5% but can you stand to wait that long and watch these decrease in value until maturity if rates rise? A good article recently published on Seeking Alpha describes bond rate risk in greater detail.
Jefferies is not publicly traded any longer but must file with the SEC in regards to its bonds. According to its latest 10-Q, it has $5.7 in long-term debt and $3 billion in cash. Of course like any financial company, Jefferies holds a lot in assets and liabilities and just a sliver in equity. The downside is that its $3.7 in equity can be wiped out quickly if any assets are written down. Its bonds are rated BBB by Standard and Poors but that means very little without proper research.
Leucadia has $2.5 billion in current assets plus $3.6 in investments (like its holdings in Jefferies) plus a stated value of $857 million in property, plant, and equipment. Subtract the $1.28 billion in current liabilities and $918 in long term debt and you have a very solvent company.
You won't get rich on these 2019 bonds yielding about 3.5% but for the right person, these can beat the alternatives of bank certificates of deposit and Treasury bonds.
Additional disclosure: We hold Jefferies and Leucadia bonds