Wednesday, August 27, 2014

Yields On Corporate Bonds - Nominal, Yield To Maturity

Yields on Corporate bonds are typically higher than other types of debt securities. The Yield to maturity is based on the nominal coupon rate and price paid. Since Corporates are not backed by a Government or municipality like Treasuries or Municipal bonds, their overall yield is normally higher.

Nominal Yield

This is the coupon rate on the bond when it first comes to market.

From American Investment Training: "This bond interest rate is what the issuer pays to par value (amount of bonds owned). It is fixed and never changes during the life of the investment. This is different than the yield to maturity or the current yield if the price paid for the security is lower or higher than par." More on Understanding Nominal Yield.

The Yield To Maturity

This is the real rate of return for a corporate bond since these are fully taxable, there is no tax free yield like you would see with muni bonds. The YTM may not be realized if the bond is callable. This is a very important factor with corporate bond yields. If the debt is called early, that could increase or decrease your yield based on the call date and the call price.

Other Factors that can affect yield on corporate securities

Length of Maturity


Yield Curve and current interest rates

As of this writing, yields on all bonds have been at historic lows for some time, so most investors have turned to high yield bond funds or individual stocks and equities.

But for investors who prefer safety and certainty of maturity and principal returned, corporate bonds offer the best pure debt yields. Your overall Yield to maturity and nominal yield will be higher with lower grade - rate corporate issues. Investment grade down to "Junk Bonds" - which is the real term for "high yield bonds" is where the best corporate bond yields can be had

For a greater detailed look at yields of all types for all bonds, please visit Bond Yield Blog

Thursday, May 8, 2014

Corporate Bond Quotes

Corporate bond quotes are found on the exchanges or on the Yellow Sheets publication. The YELLOW SHEETS are a daily list of all Over-the-Counter or OTC, (bonds not listed on the NYSE), corporate bonds and are published by the National Quotation Bureau . The list has some quotes from the previous day, but for the most part, the Yellow Sheets are simply information sheets that tell the trading desk which various broker/dealers are willing to trade the particular OTC bond. With the advent of computer data services that provide most of the information about bond inventories, the National Quotation Bureau has moved to providing the Yellow Sheets in an electronic “real time” version. Corporate bonds that trade on the New York Stock Exchange and other exchanges are not found in the Yellow Sheets because they trade on the floor of the exchanges. Three other publications list OTC securities information and inventory availability for stock: Pink Sheets , White Sheets , and Green Sheets.

Friday, April 11, 2014

Managing a Corporate Bond Portfolio - How to Manage Investment Bond Portfolio

We offer very suggested reading on the dynamic world of corporate portfolio management. 5 star average views. A great tool and learning to earn at your fullest Bond Broker or Investor potential.

Corporate bond portfolio management is a complicated process of balancing risk and expected returns. In managing this type of portfolio, you must account for a variety of factors that could impact the corporate bond market and, most importantly, the expected return of your portfolio. Managing a Corporate Bond Portfolio presents the essential elements of corporate bond portfolio management and provides you with state-of-the-art analytical tools to help enhance returns and control the risks associated with corporate bonds.

Fixed income security experts Leland Crabbe and Frank Fabozzi begin with an overview of corporate bond features, including the provisions contained in bond indentures, secured bonds and unsecured bonds, and interest payments. They also provide a solid foundation of the various corporate debt structures of corporate bonds.

Moving from introductory basics to the sophisticated analysis of returns and risk of corporate bonds, Managing a Corporate Bond Portfolio offers portfolio managers and investors the most professional advice, insights, strategies, and tools to maximize corporate bond portfolio returns while minimizing risk. An in-depth discussion of corporate bond valuation and price dynamics provides you with: * A valuation framework, as well as various measures of corporate bond yields and spreads * The most current measures of interest rate risk * Useful formulas that reveal the relation between spreads and excess returns * Strategies that can improve performance by anticipating changes in yield spreads and spread curves * A thorough understanding of the fundamental factors that drive corporate spreads. . . and much more.

Managing a Corporate Bond Portfolio continues its comprehensive treatment of corporate bond portfolio management by discussing corporate credit risk issues such as the microfundamentals of credit risk and credit analysis; measuring expected excess returns based on credit rating transition probabilities; and valuing subordinated securities. Rounding out the topic of corporate bond portfolio management, Managing a Corporate Bond Portfolio presents an analytical framework for valuing embedded options, and explores redemption analysis through an examination of how option values are affected by credit risk, and the valuation of putable bonds and their use in portfolio strategies.

Corporate bond portfolio management is a dynamic process in which investors continually reevaluate which sectors of the market have the most attractive trade-off between risk and expected return. With Managing a Corporate Bond Portfolio you'll learn to combine the many aspects of this discipline to create a portfolio that will put you in the best possible position to enhance returns in the corporate bond sector. From the Back Cover Praise for Managing a Corporate Bond Portfolio

"Crabbe and Fabozzi's Managing a Corporate Bond Portfolio is a refreshingly good book on the neglected topic in fixed income portfolio management. If you want to understand the latest thinking in corporate bonds, what drives prices and why, read this book. You will emerge with knowledge that will help you get an edge in the competitive investing arena." -Tim Opler Director, Financial Strategy Group, CSFB

"A practitioner's guide . . . a creative, comprehensive, and practical book that addresses the myriad of challenges facing managers of corporate bond portfolios. The chapter on liquidity, trading, and trading costs is a must read." -Mary Rooney Head of Credit Strategy, Merrill Lynch

"As a Senior Portfolio Manager responsible for managing billions of dollars invested in fixed income product during the mid-1990s, Lee Crabbe was the one Wall Street strategist that I would read every week to help me figure out where value was in the corporate bond market, and for insightful and easy-to-understand special reports that educated me and most investors on the risks and opportunities inherent in new structures and subordinated products. Fortunately for me and investors, Lee Crabbe and Frank Fabozzi have written this book, which compiles much of their previous work on corporate bond valuation, along with new features that are a must read, especially in light of the volatile times in the corporate bond market over the past few years. For portfolio managers, analysts, traders, and even strategists, if there is one book in your bookshelf that you should have on corporate bond portfolio management, it is this one." -William H. Cunningham Managing Director, Director of Credit Strategy, J.P. Morgan Securities Inc.

Tuesday, May 7, 2013

CMO Investing - CMO Bonds, Basics and Bonds

A Collateralized Mortgage Obligation (“CMO” or “REMIC”) is a series of bonds, backed by a pool of US Agency issued Mortgage-Backed (MBS). CMO’s have many of the same characteristics as Mortgage Pass-Though Securities including the safety of U.S. Government assurances and a AAA rating, the liquidity of an active secondary market, a yield significantly higher than comparable government securities, and monthly cash flows. However, CMO’s have three distinct advantages over “traditional” Mortgage- Backed Securities:

1. CMO’s offer more stable and predictable cash flows 2. CMO’s offer a choice of principal repayment schedules as principal payments beginning immediately, or principal payments deferred) 3. C MO’s offer a choice of maturities; short, intermediate, or long term.

Learn More: CMO Investing Basics - with free links, tutorials and trading tips

Saturday, August 18, 2012

0 coupon bonds - zero coupon securities

Bonds that do not pay a rate of interest when they are issued but pay par at maturity are considered zero coupon bonds.

Issuers of 0 coupon securities include:

U.S Government Treasury Bills U.S Government Agencies Municipalities (Municipal Bonds) Corporate Bonds

Fiixed income investments and bonds that do not have a coupons or nominal yields have little or no reinvestment risk. The term reinvestment risk refers to an investor having to deposit or invest their interest payments received from other securities. When interest rates are low, this risk can be amplified. However with 0 coupon bonds - that issue is minimized by the fact that no payments are received until maturity. Since Zeros are usually longer term - this risk is even less realized.

Learn more about: Zero Coupon Bonds with helpful links and trading companies

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Sunday, November 20, 2011

Converting Bonds

Converting a bond is based on par value and the fixed conversion price that appears on the bond. The conversion price is not the price the stock is purchased at. So, it is unlike a "Stock Option". The time to convert is the investor's choice. An example:

A customer owns ABC convertible bond that is selling in the market at $1040 or $104, the common stock is selling at $54 and the conversion price is $50. The investor would like to convert, but will only do so when the stock value is trading above the bond value. "Parity" would occur when the bond and stock are equal. The first thing you must find out is the amount of shares the customer is entitled to. We get that by dividing the conversion price into the par value of the bond ($1000). $1000 divided by 50 equaly 20.

The investor can convert out of the bond into 20 shares of stock - no more no less. The stock is currently trading at $54, so the the stock value is found by multiplying 20 (shares) by $54 (stock value), which equals $1080. $1080 is above the bond selling price of $1040, so converting at this time would meet the customer's objectives of converting only when the stock value was above bond value or "above parity".

Pricing Convertible Bonds - The Convertible Bonds (CB) market is growing all the time. To date, over one trillion dollars worth of CBs are in circulation. Corporations are finding this source of fund-raising more and more attractive. And for different reasons, the buyers are finding CBs increasingly attractive investment vehicles.

There are few works on the subject of pricing convertible bonds. Most books discussing derivative products cover all details of pricing futures and options in minute detail. Convertible bonds and warrants are usually mentioned as an after thought in the latter chapters. This is the first book to address the very complex issue of pricing convertible bonds.

Tuesday, August 2, 2011

Who Owns Corporate Bonds?

With the current debt and interest rate conditions - I was wondering who is holding corporates now. The junk bond market was always a good play for most investors as there were very few defaults.

I think the Stock Market will be down another 10% by year end. Just my opinion. Seeing where others are at with this.

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