Part 9: Let's Talk About Buying Bonds

If you missed Part 8, please click the link below before moving on. 

 

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The New York Bond Exchange

Think of a bond rating as the report card for a company's credit rating. Blue-chip firms that are a safer investment have a high rating while risky companies have a low rating. The chart below illustrates the different bond rating scales from the two major rating agencies, Moody's and Standard and Poor's:

 

Bond Rating		Grade	Risk
Moody's	Standard & Poor's
Aaa	AAA	Investment	Lowest Risk
Aa	AA	Investment	Low Risk
A	A	Investment	Low Risk
Baa	BBB	Investment	Medium Risk
Ba, B	BB, B	Junk	High Risk
Caa/Ca/C	CCC/CC/C	Junk	Highest Risk
C	D	Junk	In Default

 

Although junk bonds pay high yields, they also carry higher than average risk of the company defaulting on the bond. Historically, average yields on junk bonds have been between four and six percentage points above those on comparable U.S.

 

When I invest, I stay away from the "C''s and "D" bond rated investments. They may give you the highest rates but they may not stay in business to pay you your money. I try to stay in the "B-" to "BBB+" rated investments. I look for bonds in industries that are out of favor like the Oil Industry.

Why do you invest in oil when it materialize
 as an out of favor industry?


Security Description                          Maturity Date 
"BERRY PETE CO SR NT6.75000%          11/01/2020"

Moody's/S&P Rating                    Recent Price 
  "B1/BB-"                                    "$79.00000" 


 "A" to  "AAA" bonds give the least amount of interest to bonds rated "BB" to "B-" but investment grade bonds have low risk as appose to "High Risk Junk." If my B- bonds would get down graded to "CCC+," I would consider selling the bonds. If a "BBB" Investment Grade bond would fall to "BB+," the institution investors would have to sell the "BB+" bonds in their portfolios, causing the bond price to fall and causing the yield to go up. If I have the money, I would buy the bonds as soon as the bonds fall and stabilize in price.  

With this strategy, the investor can usually buy the bond at a deep discount and the YTD would give a high maturity.



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My Book; Building Wealth with Corporate Bonds

 

I told you many times about my last book published in 2003 called, "Building Wealth with Corporate Bonds." The price is $35.00. I am selling off my final copies of this book. After that, I do not plan to produce anymore.  Some of the topics enclosed are: 

• Creating a Risk Policy
• Bull and Bear Markets
• What are Stocks and Bonds
• Corporate Bond Strategy
• Buying Corporate Bonds on Margin
• How to Place orders

You can buy a copy of my book by sending a donation of $35.00 money order to: Darnell L Williams

Building Wealth with Corporate Bonds

I/O Darnell L Williams

200 A Seneca Way

Havre de Grace, MD.  21078

I only have a limited amount of copies so order yours today. When they are gone, they are gone.