By Nicholas Gliagias and Rom Badilla, CFA

Many bond investors do not like the idea of purchasing a premium bond, or a bond that is priced at more than its principal amount. They would rather buy a bond at a discount or at par value because it looks like the "better deal." Contrary to popular opinion, premium bonds can actually be advantageous to the investor.

Although paying a premium for a bond at the time of the purchase may seem unattractive, that outflow of cash that was spent is recouped through higher coupon payments over time. Premium bonds are attractive for their high coupon rates that are greater than current market yields. In other words, the higher initial cost can be offset by the higher cash payments received throughout the life of the bond.

Let's examine how a premium bond can be more beneficial than a discount bond. In this

By Nicholas Gliagias and Rom Badilla, CFA

One of the most significant risks for bond investors to consider is credit risk. Credit risk, also known as default risk, is the risk that a bond issuer will default on their payments of interest and principal. When a bond issuer defaults on their payments, the holders of the bond may lose most of their principal. For the most part, bonds issued by the federal government are immune from default and therefore have no credit risk. However, bonds that are issued by corporations are much more likely to be defaulted on, since companies can go bankrupt. Therefore, credit risk is a very important factor to consider when investing in corporate bonds.

Corporate bonds tend to offer higher yields compared to other investments to compensate the bond investor for the credit risk. Corporations that issue high yield bonds can be small companies or even

Below are details of a High Yield bond issued by Community Health Systems. As part of Bondsquawk’s High Yield Portfolio released earlier, this bond offers an investor an opportunity to capture high income with the potential for price appreciation.

Community Health Systems (CUSIP 12543DAL4)

• 8.00% Fixed Coupon Paid Semi-Annual basis.
• November 15, 2019 Maturity Date.
• November 15, 2015 Next Call Date at $104.00 Dollar Price.
• Current Market: Offered at $109.375, Yield to Worst of 5.72% according to Trade Monster’s Bond Trading Center.
• +535 basis points Yield Advantage over comparable maturity U.S. Treasury (On the run 3-Year).
• $108.88 Dollar Price, 5.89% Yield to Worst at time of Inclusion of Bondsquawk’s High Yield Portfolio.
• ‘B’ Rating by Standard & Poor’s which falls on the High Yield spectrum.

Company Profile

Community Health Systems, Inc. (CYH) is a nonurban operator of acute-care hospitals located throughout the United States. The company has 135

Below are details of a High Yield bond issued by the DISH Network (DISH). As part of Bondsquawk's High Yield Portfolio released earlier, this bond offers an investor an opportunity to capture high income.

DISH Network Corporation (CUSIP 25470XAB1)

• 7.875% Fixed Coupon Paid Semi-Annual basis

• September 1, 2019 Maturity Date

• Current Market: Offered at $120.38, Yield to Worst of 4.33% according to Trade Monster's Bond Trading Center

• +251 basis points Yield Advantage over comparable maturity U.S. Treasury (On the run 10-Year)

• $118.50 Dollar Price, 4.64% Yield to Worst at time of inclusion of Bondsquawk's High Yield Portfolio

• 'BB-' Rating by Standard & Poor's which falls on the High Yield spectrum

Company Profile

DISH Network Corp. is an American satellite broadcaster, providing direct broadcast service to more than 14 million subscribers across the United States. The company is the nation's third largest pay-TV provider and second-largest direct broadcast satellite TV

by Rom Badilla

Attempting to find yield in the current environment can be a difficult proposition. While yields are low, there are some strong relative value opportunities in the High Yield market. Below are details of a High Yield bond issued by Oshkosh Corporation (OSK). As part of our High Yield Portfolio released last week, this bond offers investors an opportunity to capture high income.

Oshkosh Corporation Senior Notes (CUSIP 688225AD3)

• 8.5% Fixed Semi-Annual Coupon
• March 1, 2020 Maturity Date
• March 1, 2015 Next Call Date at 104.25 Dollar Price
• Current Market: Offered at $111.56, Yield to Worst of 4.75%
• +442 basis points Yield Advantage over comparable maturity U.S. Treasury (On the run 5-Year)
• $111.13 Dollar Price, 4.97% Yield to Maturity at time of Inclusion of Bondsquawk's High Yield Portfolio
• 'BB' Rating by Standard & Poor's which falls on the High Yield spectrum

Company Profile

Founded in 1917, Oshkosh

Below are details of a High Yield bond issued by industrial leader, Terex Corporation (TEX). As part of Bondsquawk’s High Yield Portfolio released last week, this bond offers an investor an opportunity to capture high income.

Terex Corporation Senior Notes (CUSIP 880779AX1)

• 6.5% Fixed Semi-Annual Coupon
• April 1, 2020 Maturity Date
• April 1, 2016 Next Call Date at $103.25 Dollar Price
• Current Market: Offered at $106.75, Yield to Worst of 5.03%
• +434 basis points Yield Advantage over comparable maturity U.S. Treasury (On the run 5-Year)
• $106.88 Dollar Price, 5.01% Yield to Maturity at time of Inclusion of High Yield Portfolio
• ‘B+’ Rating by Standard & Poor’s which falls on the High Yield spectrum

Company Profile

Terex Corp. is a diversified global manufacturer of capital equipment operating in five business segments — Aerial Work Platforms (AWP), Construction, Cranes, Material Handling & Port Solutions, and Materials Processing. The company manufactures a

By Rom Badilla, CFA

Due to slower U.S. economic growth coupled with the shift to natural gas, the coal industry has been beaten down recently. While it is unclear if the turn is underway, there are some signs that suggest the coal industry may rebound. Improvement in exports and a slowing shift toward natural gas may fuel the focus back on coal companies. If that is indeed the case, bonds in the sector may perform.

Below are details of a High Yield bond issued by coal industry leader, Peabody Energy Corp. (BTU). As part of Bondsquawk's High Yield Portfolio released last week, this bond offers an investor an opportunity to capture yields along with the potential for price appreciation.

Peabody Energy Corp (CUSIP 704549AK0)

6.0% Fixed Semi-Annual Coupon

November 15, 2018 Maturity Date

Current Market: Offered at $108.38, Yield to Worst of 4.38%

+372 basis points Yield Advantage

By Rom Badilla

Last Thursday, one High Yield bond that caught my attention was iPayment's (Ticker: IPMT) 10.25% Coupon, Maturing May 5, 2018 (CUSIP 46262EAE5). In particular, the price action on IPMT was extreme. The bond was priced at $85.45 at the end of closing on Wednesday. By the end of trading on Thursday, the bonds cratered by 7.6% on the day and closed at $78.99 for a Yield to Worst of 16.21%. Since that low print, the bonds have rallied back to where it started at $85.45 for a Yield to Worst of 14.18%. Below is a graph from Bloomberg of the price action of the bond.

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Interestingly, there was no news on the company that day to the best of my knowledge that could possibly trigger the fall in price. The company reported results from the Third Quarter in early November. Shortly afterwards, JP Morgan

By Rom Badilla, CFA

In 2008 and amid escalating losses, the company, along with Chrysler and General Motors (GM), sought a bailout but ultimately opted not to seek government loans. Since then, the company has made substantial progress on its turnaround as evident by its credit ratings. In early 2012, Ford Motor bonds were upgraded by Moody's to Baa3 and back to Investment Grade (S&P maintains its rating at BB+) from a distressed credit during the height of the financial crisis.

As posted earlier this week in Bondsquawk's High Yield Bond Portfolio, Ford (F) has one bond issue that stands out from the rest. Below are the details and some of the key drivers for this bond.

Ford Motor Company (CUSIP 345370BJ8)

• 8.875% Fixed Semi-Annual Coupon
• January 1 2022 Maturity Date
• $126.93 Dollar Price
• 5.13% Yield to Maturity
• 352 basis points Yield Advantage over comparable maturity U.S. Treasury (On

By Rom Badilla, CFA

In last week's post, we covered why it makes sense to invest in individual bonds versus using a fund. A fund's "one-size fits-all" approach can be convenient but may not be suitable for an individual who is looking for a tailored solution toward reaching their investment goals. By choosing to own individual bonds, you will have greater control that could lead to better performance. Furthermore, you should have a better grasp of your investments and where you stand today in reaching your goals.

Below is Bondsquawk's High Yield Bond Portfolio which consists of 12 bonds, one from each diverse sector. The model is used to illustrate an active High Yield portfolio that has bonds rated from BB+ or lower. The goal of this model portfolio is total return so both income and price changes are considered in determining the allocation.

By Nicholas Gliagias and Rom Badilla, CFA

Investors look to bonds for the income they earn over time and because they are generally safe investments. Given today’s environment, bonds are an integral part of an investor’s allocation. Hence, we receive a lot of questions on the proper way to look at bonds. The one thing we noticed is that many investors tend to focus a lot on just the coupon, or the amount of interest that they will be earning during the life of the bond. While vital, it is important to realize that there should be more emphasis placed on the bond’s price as it may provide better clarity on your return on investment.

With a bond investment, you know the future cash flow, which are both the coupon and the redemption value when the bond matures. When you are purchase a bond, you are quoted a price of

BY Rom Badilla, CFA

Earlier we talked about the short comings of funds and why investing in individual bonds makes better sense. A fund’s “one-size fits-all” approach can be convenient but may not be suitable for an individual who is looking for a tailored solution toward reaching their investment goals.

Below is Bondsquawk’s Investment Grade Model Portfolio which consists of a variety of both corporate and government bonds. The portfolio is benchmarked against the Barclays U.S. Government/Corporate Index which serves as a proxy of the Investment Grade universe. The model is used to illustrate an active bond portfolio and will generally maintain a similar interest rate and credit risk profile as the benchmark. The model may deviate from the index based on outlook and strategy. That said, the model has a total return focus where both income and price changes are considered in determining the allocation.

Investment Grade Model

By Rom Badilla, CFA

Fueled by historically low mortgage rates and declining inventories, the U.S. housing market is on the road to recovery. With positive signs across almost all markets, the rebound is broad-based which should benefit companies in the homebuilding sector. Here is a bond that we covered previously and should perform as the recovery in the housing market gains momentum.

Standard Pacific Corporation Senior Note (CUSIP 85375CAX9)

• 8.375% Fixed Semi-Annual Coupon
• May 15, 2018 Maturity Date
• $117.22 Dollar Price

4.74% Yield to Maturity

• +414 bps Yield Advantage over comparable maturity U.S. Treasury
• ‘B’ Rating by Standard & Poor’s which falls on the High Yield spectrum

Company Profile

Standard Pacific (SPF) which is headquartered in Irvine, California, is a builder of single-family attached and detached homes typically ranging in price from about $165,000 to more than $1 million and in size from 1,500 to 3,500 square feet. SPF

by Rom Badilla

Many investors try to keep things simple by investing in funds in order to capture returns. While widely used, Mutual Funds or Exchange Traded Funds (ETFs) may not be for everyone, especially investors who are looking for steady income and capital preservation. If you are looking for a solution that is more tailored to your investment needs, then individual bonds are often the better option. To help understand why, let's look at some of the shortcomings inherent to bond funds, and when individual bonds are the better choice for investors.

The Problems with Bond Funds

If you look at some of the heavily traded ETFs, like Vanguard Total Bond Market ETF (BND) or iShares Core Total U.S. Bond Market ETF (AGG), they-- by design-- attempt to seek performance that corresponds to a major benchmark. For these "passive" funds as well as many others, the Barclays U.S. Aggregate

By Rom Badilla, CFA

While interest rates remain low, the need for income remains high for investors as market uncertainty can create volatility in asset prices. That said and as the search for yield continues, the risk of rising interest rates remain in the back of investors’ minds. Here are four higher yielding Investment Grade Bonds with Shorter Maturities that may insulate against price risk in a rising interest rate environment.

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• Investment Grade Ratings by Standard & Poor’s (AAA through BBB-)
• Maturity is 5 years or less
• These bonds are actively traded in two-sided markets to ensure liquidity
• Bonds are Bullet Structures with no early Call Date
• Fixed coupon that pays semi-annually
• On-the-run U.S. Treasuries are shown for comparison
• Spreads over comparable maturity, on-the-run U.S. Treasuries are measured in basis points
• U.S. Dollar Denominated
• Information and quotes provided by Trade Monster’s Bond Trading Center

Break-Even numbers reflect

By Rom Badilla, CFA

Despite accommodative monetary policy via QE3, yields on U.S. Treasuries remained range bound where buyers and sellers were indecisive on the direction of the market. However, with the latest weakness in risk assets as market watchers point to uncertainty surrounding the Fiscal Cliff, yields have broken below this sideways trend in a flight-to-quality bid and may challenge the recent lows.

As you can see in the chart below, with the yield falling 10 basis points to 1.65% on the day following the election, the 10-Year U.S. Treasury broke below the recent sideways trend. That break led to a rally where the yield reached to an intraday low of 1.55% on November 16 which is near the low set in late August. Since that probe lower, the benchmark note has retraced and sold off to the 50% retracement of the October-November rally and the former resistance

By Rom Badilla, CFA

Earlier we talked about finding value with a bond issued by Transocean (Ticker: RIG). This type of bond is a good relative value opportunity for investors who prefer a 'buy and hold' approach by way of owning the bond until maturity. This in essence locks in a yield of 3.03 percent per year when the bond reaches its maturity date in six years.

Having said this, there are other opportunities in the Investment Grade energy sector that can exceed the aforementioned annualized return without increasing its maturity date and thus adding interest rate risk. This can be accomplished if an investor uses a total return approach where both income from the coupon and price appreciation from the passage of time factor in the performance. While this approach is often used by fund managers and institutional players, it is a relatively easy strategy to implement. This

by Rom Badilla, CFA

Transocean (RIG) is the world's largest drilling service provider due to its presence in the market place and as evident by the number of operating rigs. RIG has over 140 rigs in its fleet, covering high specification floaters such ultra-deepwater ships, mid-water floaters, and standard jack-ups. Due to the variety of ships at its disposal, the company has a plethora of options when it comes to off shore environments. This is evident by the fact that the company has a drilling presence all over the globe from the Far East, the Middle East, and in the Western world.

That said, Transocean has experienced some rough waters in recent years, highlighted by the Macondo Incident in the Gulf of Mexico. RIG equity has fallen more than 34% in the past two years and close to half its value from November 2009. While the stock has dropped,

By Rom Badilla, CFA

As a follow up to yesterday’s article, "Stocks Further to Fall if Bond Yields Have Their Say," here is another tidbit of information that may keep the equity and other risk asset bulls up at night.

According to Deutsche Bank, equity fund managers have lowered their exposure to risk assets on concern of the Fiscal Cliff. In their Asset Allocation: Investor Positioning and Flows report released on November 12, 2012, the strategist team led by Binky Chadha wrote the following:

On the heels of the U.S. election, fund managers have gone very underweight risk assets as concerns about the fiscal cliff intensify. Our measure of overall equity positioning (composite beta) is near three year lows after hitting a high just a month ago.

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Composite Equity Beta & S&P 500 (Source: Deutsche Bank)

Beta is a measure of portfolio

By Rom Badilla, CFA

After the last week of stocks taking a beating, it is safe to say that risk is back off. The S&P 500 has declined by 67 points or 4.7% once the market moved past the Presidential election and was able to place all of its focus on the impending Fiscal Cliff. With this move, the S&P 500 is now well past its intermediate trend-line, suggesting the recent run by the bulls is over for now.

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S&P 500 (Source: Bloomberg)

The question is how low can stocks go? If the bond market has anything to say about it and based on the action in the 10-Year U.S. Treasury, stocks can drop a lot more.

Typically stock prices and bond yields move in tandem like two people dancing hand in hand and in lockstep. When the economy is growing, stocks rise due to increasing expectations