I sold the Unit bonds.

music selection:  “Lay Down Sally” — Eric Clapton

I purchased CUSIP 909218AB5, the Unit 6.625 coupon bond with 15MAY2021 maturity on 25SEP2019 for 77.5 cents on the dollar.  I paid 9 dollars in commissions on 9 bonds and 218.63 in accrued interest for total cash out of pocket of 7,202.63.  The company needs to refinance and may be having trouble doing that.  It made a tender offer that was reasonably attractive but has since twice extended the deadline.  This indicates that there may be few takers and the company may be planning a reorganization bankruptcy that could threaten my principal

I decided to revoke my acceptance of the tender offer and sell my bonds for what I could get on the market.  I sold yesterday 16JAN2020 for 54.26 cents on the dollar.  I paid 9.75 in commissions and collected on coupon during holding plus my accrued interest for a total of 407.48 in interest income.  That is total proceeds during the holding period of 5,281.13, resulting in a 1,921.50 loss or 26.68%.

It hurts to take a loss on a bond since I have limited diversification in bonds and it is so hard to find attractive distressed bonds with the high yield to Treasury spread being near historic lows.  It is just a difficult market for high yield bond investors right now.  The market will turn, the Treasury spread will widen, and bonds will be a far better place to be invested than equities for a few years.  But that time is not now.  I hope to continue making market neutral options trades to raise cash for deployment into bonds when the credit cycle finally turns.

Devour your prey raptors!

Sell Unit bond CUSIP: 909218AB5

Never miss another opportunity to devour prey!

2 thoughts on “Sell Unit bond CUSIP: 909218AB5

  • January 21, 2020 at 6:26 pm

    Well, it’s part luck and part learning. No need to feel bad about playing defense. Was there any factor that might have helped you anticipate this outcome?

    Also, if your bond diversification is low, might portfolio volatility be reduced by swinging for singles instead of home runs? I.e. debt selling for 7-15% YTM instead of 15-30%?

    As for me, I would start to feel the temptations of JNK and HYG.

    • January 21, 2020 at 10:40 pm

      Don’t know how I could have predicted the future here. You pay’s your money; you takes your chances.

      I have no interest in JNK or HYG, which I think are toxic instruments. The vast majority of high yield bonds are overvalued right now. You can get a feel for this by looking at the current versus historical spread between 10 year Treasuries and a high yield index. The spread is near all time lows. That is certain to end badly for investors in JNK/HYG. What I might consider would be SHORTING JNK/HYG and deploying the funds in individual distressed bonds that I think are more rationally priced. Basically a pairs trade where I say the market as a whole is out of whack and will underperform individual securities that have a more rational valuation.


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