I sold two of my discounted bonds for a profit today.

music selection:  “Erase/Rewind” — The Cardigans

First up is the Peabody Coal (BTU) 6.000 coupon, 15NOV2018 maturity bond.  I had two units purchased on 19NOV2015 for 20.50 cents on the dollar.  I paid 4.00 in commissions and 3 dollars in accrued interest.  The company is in “debtor in possession” status (bankruptcy) and the bond has climbed nicely to a profit.  I decided to get out while the getting was good and before the bonds convert to equity and liquidity gets tight.  I sold the bonds for 35.511 cents on the dollar, paid 2.75 in commissions and received no accrued interest as the bond is in default and “trading flat”.  I did pick up 60 dollars in coupon payments during the holding period prior to default.  The trade was in force for 328 days and yields 93.53% annualized.

Second is Vanguard Natural Resources (VNR).  This one is in technical default, enjoying the 30 day grace period before bond holders can force bankruptcy.  It moved narrowly into the green today so I decided to take my money and run as the average recovery in bankruptcy is only 40 cents on the dollar but the bond was trading for 58.25 cents on the dollar.  I originally purchased the bond on 20NOV2015 for 55 cents on the dollar.  I paid 2 dollars in commissions and 23.63 in accrued interest at that time.  Today, I got 58.25 cents on the dollar, paid 2.75 in commissions and received no accrued interest as this bond is also “trading flat”.  I did pick up 157.52 in interest payments from coupons during the holding period, prior to technical default.  The trade was in force 327 days and yields 19.25% on an annualized basis.  I feel like I did pretty well on both trades considering I was “wrong” in both cases yet came away with nice profits.

Devour your prey raptors!

Update Discounted Bonds

Never miss another opportunity to devour prey!

2 thoughts on “Update Discounted Bonds

  • October 14, 2016 at 6:09 pm

    Do you consider these to be gambles? If so, why gamble? If not, why not?

    • October 14, 2016 at 8:25 pm

      I don’t really think of it as gambling. With a casino, the odds are against you. Mathematically, over long periods of time you always lose (save a couple games of skill like poker.) With discounted bonds, I’m buying a price lower than the long term historical expected value of the underlying securities. Over long periods of time, I should expect to win.


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