Michael Terry

Looking to Invest in Bonds in Troubled Times? Caveat Emptor!

Couple thoughts: Some bonds trade at $25 par and are exchange traded so they make sense for retail investors - obviously check the yield relative to treasuries. Buying $1000 par bonds from brokers is a great way to lose alot of money - I had Schwab tell me Ford bonds traded on top of treasuries! After they gouge you on the buy price, they will smack you on the sell price - you can bet that will be at market! For institutions and smaller corporations, there is TRACE pricing which will show where a bond priced the last time it traded. The author is correct however that a CEF or ETF makes sense if you are making a macro bet.

Convertible Bonds Are an Interesting Speculation

Therefore, we prefer to be higher in the capital structure until more of the smoke clears. Convertibles are a bit higher than equities, although generally below traditional bonds, and certainly lower in the national capital structure than Treasuries and municipals.

Actually, unless you are talking about convertible preferreds, convertible bonds are parri to "traditional bonds" as they are senior unsecured debt. Converts are trading at discounts to the bond floors currently, essentially paying you to take an equity option. A 5-10% discount to bond floors in converts is a steal.