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In “17 Too-Big-To-Fail Senior Bonds,” I introduced a variety of unsubordinated notes from the eight American systemically important financial institutions. If you are an investor willing to venture out a bit further on the risk curve than senior debt, subordinated debt just might become your new favorite stomping ground. Where else will you find a 13-month A1/A rated note yielding 2%, versus a comparable Treasury at 16 basis points?

On that note, it is important to recognize that the prices and yields of some of the following notes tells us that the market does not believe the current ratings are correct. Just as equities often price in bad news ahead of time, debt securities can do the same. Whether or not the current ratings on these notes eventually change, the market has spoken. If the market viewed all the following notes as correctly rated, we would not be seeing an A3 rated Wells Fargo (NYSE:WFC) note with roughly two-and-a-half years to maturity yielding 2.625%, while an A3 rated Morgan Stanley note with roughly two-and-a-half years to maturity is yielding 6.568%.

With that said, here is the list:

Citigroup’s (NYSE:C) subordinated note (CUSIP: 172967BL4) maturing 6/15/2032 has a coupon of 6.625% and is asking 94 cents on the dollar (7.188% yield-to-maturity before commissions). It pays interest semi-annually. Please contact your broker for details on this note’s call features. Moody’s currently rates the note Baa1; S&P rates it BBB+. It was originally offered at a price of 98.651 on May 30, 2002.

Citigroup’s (C) subordinated note (CUSIP: 172967BW0) maturing 5/7/2015 has a coupon of 4.875% and is asking 99.784 cents on the dollar (4.943% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note Baa1; S&P rates it BBB+. It was originally offered at a price of 99.892 on April 30, 2003.

Wells Fargo’s (WFC) subordinated note (CUSIP: 949746FS5) maturing 4/15/2014 has a coupon of 4.625% and is asking 104.563 cents on the dollar (2.625% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note A3; S&P rates it A. It was originally offered at a price of 99.832 on March 30, 2004.

Wells Fargo’s (WFC) subordinated note (CUSIP: 949746JE2) maturing 9/15/2016 has a coupon of 5.125% and is asking 106.902 cents on the dollar (3.543% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note A3; S&P rates it A. It was originally offered at a price of 99.478 on September 7, 2004.

Goldman Sachs’ (NYSE:GS) subordinated note (CUSIP: 38141GEU4) maturing 1/15/2017 has a coupon of 5.625% and is asking 98.681 cents on the dollar (5.926% yield-to-maturity before commissions). It pays interest semi-annually. Please contact your broker for details on this note’s call features. Moody’s currently rates the note A2; S&P rates it BBB+. It was originally offered at a price of 99.931 on January 3, 2007.

Goldman Sachs’ (GS) subordinated note (CUSIP: 38141GES9) maturing 1/15/2027 has a coupon of 5.95% and is asking 93.01 cents on the dollar (6.691% yield-to-maturity before commissions). It pays interest semi-annually and has a make whole call. Please contact your broker for details on this note’s additional call features. Moody’s currently rates the note A2; S&P rates it BBB+. It was originally offered at a price of 99.746 on November 2, 2006.

Goldman Sachs’ (GS) subordinated note (CUSIP: 38143YAC7) maturing 5/1/2036 has a coupon of 6.45% and is asking 88.079 cents on the dollar (7.523% yield-to-maturity before commissions). It pays interest semi-annually and has a make whole call. Please contact your broker for details on this note’s additional call features. Moody’s currently rates the note A2; S&P rates it BBB+. It was originally offered at a price of 99.706 on April 10, 2006.

Morgan Stanley’s (NYSE:MS) subordinated note (CUSIP: 61748AAE6) maturing 4/1/2014 has a coupon of 4.75% and is asking 96.12 cents on the dollar (6.568% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note A3; S&P rates it BBB+. It was originally offered at a price of 99.129 on March 23, 2004.

JPMorgan Chase’s (NYSE:JPM) subordinated note (CUSIP: 46625HGN4) maturing 6/27/2017 has a coupon of 6.125% and is asking 107.75 cents on the dollar (4.534% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note A1; S&P rates it A-. It was originally offered at a price of 100 on June 20, 2007.

JPMorgan Chase’s (JPM) subordinated note (CUSIP: 46625HDF4) maturing 10/1/2015 has a coupon of 5.15% and is asking 104.639 cents on the dollar (3.835% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note A1; S&P rates it A-. It was originally offered at a price of 99.584 on September 27, 2005.

JPMorgan Chase’s (JPM) subordinated note (CUSIP: 46625HAT7) maturing 1/2/2013 has a coupon of 5.75% and is asking 104 cents on the dollar (1.997% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note A1; S&P rates it A-. It was originally offered at a price of 99.831 on November 18, 2002.

Bank of America’s (NYSE:BAC) subordinated note (CUSIP: 060505DL5) maturing 9/15/2037 has a coupon of 6.50% and is asking 84.898 cents on the dollar (7.876% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the note Baa2; S&P rates it BBB+. It was originally offered at a price of 99.424 on September 6, 2007.

Bank of America (BAC) also has a myriad of subordinated Internotes. Internotes are debt securities geared towards individual investors, allowing retail investors an opportunity to purchase new issue bank debt. These notes are generally quite illiquid in the secondary market, meaning investors are usually best suited to purchase Internotes with the intention of holding them to maturity. Moody’s currently rates Bank of America’s subordinated Internotes Baa2; S&P rates them BBB+. They can be found across a wide spectrum of maturities, and most are currently trading at discounts. These notes are usually callable at par. They are also usually callable on a regular schedule, often every three or six months. In terms of put features, Internotes commonly come with a “death of holder” conditional put.

If you are interested in purchasing any of these securities but are nervous about counterparty risk wreaking havoc on your portfolio, learn how to hedge individual bonds in, “Protect Your Income Portfolio With Cross-Asset Hedging.”

Please be aware that prices in the over-the-counter U.S. bond market may vary depending on the broker you use. The current prices may also differ greatly from those listed at the time this article was written. Also, please do your own due diligence on the financial profiles of the companies mentioned in this article. Only you can determine if taking the counterparty risk of purchasing individual bonds is suitable for you.

Source: 12 Too Big To Fail Junior Bonds