Friday, November 28, 2008 1 comments ++[ CLICK TO COMMENT ]++

Bond market: small investors not wanted

It looks like I'm going to have to dump my junk bond idea. A view I have held of the bond market was just reinforced. Namely, that it is not for small investors and is not efficient.

I investigated whether I could buy some junk bonds through my broker and it is not worthwhile for me. It should be noted that I'm in Canada and trying to buy an illiquid bond.

I requested some quotes from my discount broker, HSBC Invest Direct, for a couple of Sears Roebuck Acceptance Corporation bonds and their prices are horrible (quoted price includes commission.) The quoted a 6.7% bond maturing in 2012 at a price value of 68.84 while FINRA shows the latest price as 49.75. Another 7.5% is quoted at 85.74 while FINRA shows a transaction at 48.02. So, bonds that are yielding around 30% can only be purchased through my broker for yields of around 20%. That's a huge premium and it's simply not worth it for me. I'll see if Canadian bonds can be bought at attractive prices. If not, I'll look to see if I can buy some exchange-traded bonds.

I'll note that I'm looking at illiquid bonds but even then, the prices are not attractive--at least at my broker.

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1 Response to Bond market: small investors not wanted

November 28, 2008 at 10:01 PM

You can still capture high yield bonds through two ETFs I can think of off of the top of my head: HYG and JNK. There may be others. JNK is yielding 16% right now - a bit less than your target. However, it is very liquid and you could lever up to get to the desired yield.

One more option - you can purchase shares of a company that owns a portfolio of high yield debt, like HTGC. They do super-senior loans to early stage companies. Currently yielding 21%. I have a position in HTGC. There are other, similar operations.

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