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  • Terex Corp Bond Offers High Income Opportunity [View article]

    Glad to help. Let me know if you have any other questions. The best way is to visit and post a comment on one of our articles. We monitor everything on SA but not as often as our website.


    Dec 17, 2012. 11:39 AM | Likes Like |Link to Comment
  • Terex Corp Bond Offers High Income Opportunity [View article]

    Here's an example of the cash flows. I modeled it on excel to solve for the price of the bond if you assume the bond is called at par in 2018 and a constant yield of 5.03% throughout its life. As you can see, the price moves toward par as it ages but again, the coupon offsets the price decline.

    To make it simple, I used April 2012 as the starting date in order to make the first period a full year. So the dollar price is a little off from today's prices listed in the analysis. So this is used to illustrate that the higher-than-market coupon offsets the price decline.

    Price at 5.03% Price Chg Coupon
    4/1/2012 107.53
    4/1/2013 106.43 -1.0% 6.5%
    4/1/2014 105.27 -1.1% 6.5%
    4/1/2015 104.05 -1.2% 6.5%
    4/1/2016 102.76 -1.2% 6.5%
    4/1/2017 101.42 -1.3% 6.5%
    4/1/2018 100.00 -1.4% 6.5%
    Dec 17, 2012. 10:09 AM | Likes Like |Link to Comment
  • Terex Corp Bond Offers High Income Opportunity [View article]

    Good question. If the yields were the same and I was indifferent between the two, then I would take the par bond all day long. However, they are rarely the same since your initial concerns are shared by many. It is one of those "inefficiencies" that occur in the bond markets. I believe since it is difficult to short corporate bonds, these inefficiencies occur regularly, ie short the par bond and go long the premium bond. If you could, then I think that inefficiency would be stripped away. Luckily for some investors, these inefficiencies create opportunity for value, especially if you plan to hold until your receive your principal back.

    I really hope this helps. Again, I really appreciate the comments.
    Dec 17, 2012. 09:51 AM | Likes Like |Link to Comment
  • Terex Corp Bond Offers High Income Opportunity [View article]

    Bonds that are either a discount or a premium, will acrete toward par as the bond ages toward either the call date or the maturity date. In the case of the premium, you are receiving a high coupon to compensate you for that negative acretion. In the end, the Yield to Worst which is a simple Net Present Value calculation of what you will earn.

    What you are afraid of it seems is the potential dollar loss just by looking at the price. As with any investment, the price doesn't incorporate all of returns. If a stock did not change for several years, one can easily argue that the stock did not perform. However, that does not tell everything since we need to look at the dividend yield. Looking at a bond is no different except that we know the cash flows throughout the life of the bond.

    Keep in mind that these are market prices. I do not make these up. While the bond markets have some inefficiencies (as do commodities and stocks), bond prices are driven by supply and demand from a wide variety of players. If buying a premium bond is in truly a loss and is shared by everyone, no one would touch them. If that was the case, then callable bonds would never trade above par. If you take the prices listed here as market prices, then there is something that you need to do more homework on.

    I would suggest reading this resource on premium bonds:

    If you are still skeptical, then I would suggest you follow whiff's example of calculating the future cash flows and coming up with a yield calculation.
    Dec 16, 2012. 08:15 PM | Likes Like |Link to Comment
  • Bondsquawk's High Yield Bond Portfolio [View article]

    Well said. Along similar lines, that is why I use Yield to Worst to determine its potential of return. This factors the price of the bond today, all possible call dates and its maturity. Its simple and easy to use. Also, it screams opportunity, especially when you compare it to similar bonds. In particular, you can see two bonds from the same issuer with similar maturities. The difference between the two lies in the price. Usually, the one trading at a premium dollar price is trading cheaper with a higher YTW. This comes from people's bias toward par bonds which result in a lower yield. This doesn't make sense from an economic perspective on the same basis you pointed out. In the end, I will never complain because this is easy opportunity to find good relative value.
    Dec 11, 2012. 03:51 PM | Likes Like |Link to Comment
  • Bondsquawk's High Yield Bond Portfolio [View article]

    Regarding the bonds that you posted, I checked for offerings with half a dozen brokers and only received prices on 2 of them. On 3704A0KZ4 ALLY 7.5% 5-15-2016, bonds are offered now at $101.857 for a Yield to Worst of 3.00%. For 3704A0HB1 ALLY 6.5 3-15-2016, bonds can be bought at $101.00 for a Yield to Worst of 2.48%. So, the prices that you are showing (not sure if they are today's prices or from when you bought bonds months ago) are not there. If you can get those prices and yields, then they are an excellent opportunity. However and from what I can see, those prices you indicated are no where close to where they are being offered among many of the retail dealers I can view.

    As far as the remaining two bonds, while I did not get offerings (which is not uncommon for short-dated maturity bonds), I can see where they can be sold. For both of them, they can be sold at a slight premium in price. So if we assume your typical spread, then that would put the offered side into the high $100/low 101 dollar price range. Given the coupons, that would put the yields in the same ballpark of 2-3% as the other two.

    Like I said before, if you can get them close to par, more power to you. If you were lucky to own these bonds months ago when they were trading at a discount, then hold onto them for the cash flow for as long as you can.

    Since we are dealing with market levels of today, we can only determine what is right given our opportunities. For an investor who wants more yield than 2-3% and wants to look at the High Yield sector for investments, then this sample could provide a solution given its average Yield to Worst of 5.4%. Again, this average yield incorporates the early redemption feature of the callable bonds. So, that YTW measure of 5.4% incorporates that into its calculation and is a good representation of what kind of return to expect.

    Thanks for the comments. I appreciate the discussion.
    Dec 11, 2012. 01:42 PM | Likes Like |Link to Comment
  • Bondsquawk's High Yield Bond Portfolio [View article]

    is that 11.2%, the coupon or the yield?
    Dec 10, 2012. 01:54 PM | Likes Like |Link to Comment
  • Bondsquawk's High Yield Bond Portfolio [View article]
    Also, the Yield shown is the Yield to Worst measure which is calculated by using the lower of either the Yield to Maturity or the Yield to Call on every possible call date. So if you are concerned of the early call date, the yields which are still positive given their premium dollar price reflect that possibility.
    Dec 10, 2012. 12:30 PM | Likes Like |Link to Comment
  • Bondsquawk's High Yield Bond Portfolio [View article]
    The higher cash flow from the coupon justifies the premium dollar price. This is reflected in the Yield calculation. Check out our article found on our website that explains the importance of using Yield to Maturity calculation. At the end of the day, a higher Yield to Maturity is all that matters.

    Thanks for the comments.
    Dec 10, 2012. 12:12 PM | Likes Like |Link to Comment
  • Bondsquawk's Model Portfolio [View article]
    Hi Jas1,

    Regarding, your comment:

    "How is it different to use your model? There still is zero transparency into your process and your model would not assist investors know anything about the companies issuing the bonds in your model."

    We totally agree that transparency is important. Admittedly, we are total bond geeks so nothing makes us more happy than showing investors what we know and see every day in the bond markets. Visit for analysis on most of the bonds listed. Its all there for everyone to see!!!

    Also, if you want to know when we make changes to the model portfolio (not to mention the accompanying analysis), sign up for our newsletter on the right hand side of our website. No strings attached and you will know when the changes are made.

    As a sample to our type of analysis, check out this post on a bond that should benefit if the housing market continues to recover! If you want more transparency that all of the reasons given, let me know and we will try to do more.

    Thanks for the comments. We appreciate it.
    Dec 7, 2012. 11:01 AM | Likes Like |Link to Comment
  • Bondsquawk's Model Portfolio [View article]
    Hi chgooldtown,

    Good point. Yields are low. That is a fact of the current environment. That said, yields can always go lower. Since this bond has duration, there is always potential for further price gain. Remember that the portfolio yield is a "yield to maturity" calculation. So in order for that return to be realized, the bonds need to be held to maturity to earn that as discussed here:

    However, what if you believe interest rates continue to fall? What if equities drop and bonds rally because we fall off the Fiscal Cliff, Europe falls into the ocean, and we go into another recession? Since this portfolio has duration, then the prices on these bonds will appreciate in a bond rally scenario. So much that the total return will often exceed the yield to maturity. So that 2% is only an indication of future returns only if certain conditions are met. If rates fall, the return on the portfolio will be significantly much greater than that.

    Also, even if rates do not drop, the portfolio yield is still better than the general overall market by 30bps. The portfolio yield can definitely be increased if you remove a good chunk of the Treasury allocation and focused more on just the Corporates. If the feedback is there, we would be more than happy to show that!

    Thanks again for the comments!
    Dec 7, 2012. 10:51 AM | 1 Like Like |Link to Comment
  • A High Yield Bond For A Housing Recovery [View article]
    Please explain why it is too late. Whether we right or wrong, we would be happy to discuss. Thanks.
    Dec 7, 2012. 10:22 AM | Likes Like |Link to Comment
  • A High Yield Bond For A Housing Recovery [View article]
    Hi jbzw,

    Great question. Technically speaking, this bond has a "Make Whole" call feature and is continuously callable. Issuers in general rarely utilize this type of feature simply because the costs are ridiculously high and rarely makes sense. Though, if they do and the company calls the debt, the investor is made "whole" and compensated.

    In this case, the Make Whole Call feature is at +50bps so the bondholder would get a dollar price north of $135 if it happened today. Given today's price of $117.22, that would be a nice gain if it were to happen. Unfortunately, that is not going to happen in the foreseeable future where the company decides to retire the debt before maturity.

    Thanks for the comments and let us know on our website, if you have any more questions. We would be happy to help!


    Dec 7, 2012. 10:20 AM | 1 Like Like |Link to Comment
  • Why Investing In Individual Bonds Makes Sense [View article]

    You are absolutely correct! Investing in individual assets applies to all classes. Keep in mind though that since we are bond geeks over at, we like to focus on our expertise and leave the other stuff to the experts in that particular asset class. Don't get us wrong though. We do like to to talk about stocks and commodities once in awhile simply because everything is interconnected. Not to mention, we enjoy talking about markets as much as you do. :-) Thanks for the comments!
    Dec 7, 2012. 09:58 AM | Likes Like |Link to Comment
  • Key To Maximizing Bond Returns With Yield To Maturity [View article]
    Hi Whiff,

    Thanks for the comments and positive feedback. YTC and YTW are just as important, especially if a bond isn't just your plain vanilla bullet maturity.

    Here's an article we posted awhile back on finding bonds that are cheap simply because they are trading at a premium over par:

    Thanks again for the comments!
    Dec 7, 2012. 09:49 AM | 1 Like Like |Link to Comment