An inside look at a corporate bond order I placed last night

There's no real purpose to this thread other than giving anyone curious about bonds a look inside a deal I set up last night. Any comments are always welcome.

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I've started to practice corporate bond investing. I'm already good at businesses and notes, so I'm moving onto the next part of my strategy.

Bonds are effectively just loans to companies, and you can buy/sell these on a stock exchange. Eg: A company needs $1m to expand, so it will issue a million $1 bonds, and (normally) pay you x% interest ("coupon") either quarterly or semi-annually. Buying and selling these bonds, you can get them at a discount to face value, eg: $0.90 each, or at a premium, eg: $1.10 each. Once you own them, you receive interest, and then at the maturity date, the company pays you the $1 back (unless you've sold it before then). Bonds call also have a couple of different flavours, such as being "convertible" (ie: you can convert them to stock in the company).

Here's the info on the bond I bought: (well, I don't own it until the order is executed)

Company: deals in minerals and mining.
Current market price: $0.86.
Face Value: $1
Coupon: 10.5% quarterly (next coupon June 30)
Maturity: Sept 30, 08.

Before I go ahead, how much do you think this bond is worth?

This is a bond which has a low trading volume, and currently has a lot more sellers than buyers so I put in a bid of $0.60 per bond (remember that each one is a $1 bond which matures in 4 months).

I am one of only 6 buy orders, and one other also has an offer of $0.60. The market has been open for about 2 hours now, and the order hasn't been executed yet. I'll have to wait and see. I might be too optimistic with my price, but if I get it, it's a super-bargain.

:-)

Daniel.

I didn't see the company rating....

assuming grade A and that it's insured,

buying it for 60 cents and getting .0525 pymt is a great deal...


it's obviously worth more, but why are there so many more sellers than buyers? in this interest rate environment people are lining up for double digit yields

This one is on the Australian Stock exchange.

UPDATE: I watched the market depth during the day, and amended my order to $0.62. The market closed without having executed my order. I was being optimistic and it didn't work ;-)

there is no incentive for the seller to sell so far below par if the debt is secure....

keep the bid open, though if you have nothing to lose

I think there might be a range of economic issues at work at the moment. We have increased rates, inflation, mild hysteria over fuel prices, and tax time is coming as well. I think the market price has also fallen for a while, so fraidy-cat investors might want out.

The order I placed was good for one day, so I might place it again. ;-)

Daniel.

if you're looking for secure debt and high yield returns (and if you can afford little sleep).... perhaps buying Lehman Bros bonds is the way to go...

1 wk later. I don't know if buying Lehman bonds is the way to go... defunct is a word thrown around too casually these days...

have you gotten a bite on your bid?

The supreme court action I am preparing got in the way, so I haven't had time/mental capacity for it, and the current market depth hasn't supported it... Dreamers want to sell, but only at an unrealistic price ;-)

Daniel.

What company's bonds were you attempting to buy Daniel?