Competitive Yields

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Jan 8, 2007 1:22 pm

Just wondering if we could compare apples to apples here.


If you go to your bond functionary (however you buy bonds) and look for your best yield within criteria. Let us know, so we can know if we're competitive.


For example, AAA Muni non AMT in size (at least 50 in inventory), highest yield (not maturity specific, not state specific) with a point SC.


I'm showing a NJ 4.5 of 7/1/37 @ par w/ 1pt (at this level there is next to nothing else to offer)


I can see T-Bond 4.5 of 2/15/36 @97.56 w/1pt YTM= 4.653


Are my offers higher of lower than yours?


Meanwhile, can you guys who use advisory desks gve us an idea of how your offerings come in?


Thanks,


Mr. A


Jan 8, 2007 1:42 pm

Maybe a better example is this :


WACO TEX HEALTH FACS DEV CORPFHA INSD MTG REV  4.5 of 8/1/35 Callable 08/[email protected] - OID - 97.636/4.65 - Extraordinary Calls - Hospitals Use - AAA/AAA @ Par and a 1/4 w/1pt YTM 4.484


I say better because of the Double Triple.


Mr. A

Jan 9, 2007 10:52 am

No takers?


Why not?


Is there something flawed in the question?


There are no judgments here I'm not saying you should or you shouldn't, but we as front liners ought to be able to KNOW if we're getting hosed and lied to by our firms.


Once, long ago, I had a friend (I know, try to contain your incredulity) who went from SB to Pru (I said it was a long tiome ago) and so I was chatting with him upon the telephone and we started comparing bonds. Turned out that on the same Govie he had a better yield with a full point better SC. When I reported this in the sales meeting, I was met with "Can't be, we have the best desk in the industry blah blah blah..." and this was from the brokers, who I thought knew what was what.


Here's a CD rate 1 yr @ par 5.05% w/$2 sc


I can also show 5.2% w/ .5 sc (which is what $50 for $100M? I'd lose money on that buy!)


My highest that I show in size is a 6.05 of 12/21/26 @ 99.99+ w/$5


Mr. A

Jan 9, 2007 12:38 pm

I show Henderson @ par w/ .5 sc Actually I have three maturities for this one.


Mr. A

Jan 9, 2007 12:45 pm

I show the Sallie Mae @ par w/ 2.25 which would be priced at 97.94 w/ 1.9.


Mr. A

Jan 12, 2007 12:06 pm
mranonymous2u:

Just wondering if we could compare apples to apples here.


If you go to your bond functionary (however you buy bonds) and look for your best yield within criteria. Let us know, so we can know if we're competitive.


For example, AAA Muni non AMT in size (at least 50 in inventory), highest yield (not maturity specific, not state specific) with a point SC.


I'm showing a NJ 4.5 of 7/1/37 @ par w/ 1pt (at this level there is next to nothing else to offer)


I can see T-Bond 4.5 of 2/15/36 @97.56 w/1pt YTM= 4.653


Are my offers higher of lower than yours?


Meanwhile, can you guys who use advisory desks gve us an idea of how your offerings come in?


Thanks,


Mr. A




Just to cover a base here, we can't do an apples to apples comparison with munis. There are too many variables. First between issues, and then within the same issue, to accurately compare pricing. As I said on the annuity thread, unless a bond is purchased at exactly the same time, from the same source, and in exactly the same block amount, a valid comparison can't be made. Suffice to say, that as your bond desk's major client, the bonds will be marked up to you, for you to markup to your client.


Almost every muni has warts. The more warts, the higher the yield. I use this with clients because they can relate to it. The uglier the bond, the higher the yield. Some warts include rating, issuing authority,and call features. We love ugly ducklings. An ugly duckling is a bond with a yield enhancing wart that is meanless to the client.


That said, if you want to add value to your clients become an educated consumer. Fixed income isn't going away. Pick a bond type you like and become an expert in that area. I like munis, so that's my area. Now, I still use MBS and Corporates, as well as preferreds. I know more than enough about these other fixed income areas to distinquish between an opportunity and a hose job. Yet, some of my buddies run rings around me when it comes to the nuances. With munis, it is I who is running rings around them. This how I add value to my clients situation. This stuff isn't hard. If it was I couldn't do it.


Anyone can pick a fund. How hard is that? Want to set yourself apart? Pick some bonds. Don't get all hung up on the details, just find a  good bond, step up, and buy it. Once you do this, your client will become a bond buyer. They will grow to love bonds. Other advisors, who are trained to use funds/managers will have a much harder time undermining you as most don't understand enough about bonds to dissuade a client. Especially a client who has received income from a bond for years. Take it from experience, this works.


Regardless of bonds vs bond funds, becoming educated can only help you help your clients.

Jan 12, 2007 12:31 pm

Sounds like a nice niche - positioning yourself as more of a bond specialist. Considering the evolution of bond ETFs, the growing importance of international fixed, the peculiarities of junk, the relative scarcity of good munis (depending on what inventory you have to choose from for any category for that matter), not to mention individual security risk, and liquidity risk for that matter (needing to sell a particular issue to generate cash at a certain moment in time) - I'm not convinced of the economics of specializing more in bonds, at least with "smaller" portfolios, or in an average practice with a mixture of account sizes.


But like you say, the choice is there, and increasing knowledge is a good thing. Besides, we have your expertise on tap here.

Jan 12, 2007 6:50 pm

It's a niche alright, but you better have a Sh*tload of client assets.  I do a fair amount of bonds myself, mostly new issue agencies (FHLB, Fannie Mae, etc), and I can tell you it don't pay much.


But if it's right for the client it's right for the client.

Jan 13, 2007 1:55 am

I imagine there could be a lot worse things than being a bond guy for a bunch of retired widows, who hold much of the country's wealth, anyway. The referrals must just be a terrible burden to handle, once you are establish and get the "just buy and hold bonds" story out. Dealing with a bunch of cool mature poeple who have money, dealing in products that represent the true definition of wealth - maybe a good generalist here will do a "career change" to be like the bond guy some day.

Jan 13, 2007 2:34 am
BondGuy:

That said, if you want to add value to your clients
become an educated consumer. Fixed income isn't going away. Pick a bond
type you like and become an expert in that area.

I do the same thing with REITs, if you can add value you will have
long term clients. And your performance will smoke the funds. A pity
that many of the REIT preferred's are illiquid though.


There are a going to be a few preferred stock ETF's comming out, and that may help make the market a bit more active.


The new bond etf's from iShares are very nice including the new Lehman short treasury (1-) fund and Lehman 1-3 credit .

Jan 16, 2007 12:08 pm
planrcoach:

I imagine there could be a lot worse things than being a bond guy for a bunch of retired widows, who hold much of the country's wealth, anyway. The referrals must just be a terrible burden to handle, once you are establish and get the "just buy and hold bonds" story out. Dealing with a bunch of cool mature poeple who have money, dealing in products that represent the true definition of wealth - maybe a good generalist here will do a "career change" to be like the bond guy some day.


Retired widows? Yup, got some of those in the book. I have many more business owners, retired and otherwise in the book. This is the second time in the past week or two on the forum here that having a bond book has been equated to having a book filled with widows or retired grannies. Are you guys really this misinformed or have you never pursued a quality bond business?


Here's the deal on muni's: EVERYONE should own them. OK, there are some low income people for whom they may not be the best alternative. But for everyone on the plus side of a taxable equivalent yield calculation munis will put more money in their pocket. For asset allocation purposes they make a pretty good non correlating asset. More income, less risk. Sounds pretty good, huh? And for high income business owners who risk their capital everyday they solve two problems, risk and taxes. They are a foundation investment.


"Mr. Jones you risk your money everyday in your business. You work hard to make that money. My job is to not lose it."


 "Mr. Jones I don't care how much money you want to invest in the stock market, you need to own tax free municipal bonds."


Widows are nice, but the market is soooooooo much bigger than that.

Jan 16, 2007 1:03 pm

My biggest bond acct's are with business owners.


I used to have Sal, he was a barber. He didn't want to know from Munis and I would have to beat on him to buy his bonds (if rates were up, they were going to go higher, if they were down they were going to go higher).


We bought quality in it's many permutations (1st mortgage Utilitiy bonds of low investment grade, high sub to AAA taxable munis) and played all sorts of yield games that were available at the times (Declining interest rates, buying long term/short callable bonds at the call price, we took in double digit returns in 1 year paper when the market was 7% tops).


We found all manner of extra yield and there were times when we traded them pretty often (relatively). He was a mighty pain in the rump, he always wanted more of those 10% Monoghela waters(?) that I had to just about wrestle him to the ground to buy 25 of (on a $600M portfolio in house and plus $1MM in total financial assets) when rates went down. But it was fun.


Sal died and his widow and her spinster daughter(plus $600M herself) were clients who were emotionally attached to every bond that Sal bought. I don't know how many times I fired them. When I left, I sent them a letter, they said they were coming, then they thought different, I said I was sorry to see them go. I never called them again.


Point being, Business men buy bonds, Little Old Ladies... not so much. Point being that a guy with a dinky barber shop put together $1MM in bonds over his lifetime. Point being that bonds can be as much FUN to work on as any stock portfolio. It's just math with bonds, and you are looking for irregularities in the market.


All this having been bloviated. There is still no reason that we can't compare prices on dollar bonds, on Gov'ts and on CD's (which may well even be the same issue) and take a look at the man behind the curtain!


Mr. A

Jan 16, 2007 7:16 pm
mranonymous2u:

My biggest bond acct's are with business owners.


I used to have Sal, he was a barber. He didn't want to know from Munis and I would have to beat on him to buy his bonds (if rates were up, they were going to go higher, if they were down they were going to go higher).


We bought quality in it's many permutations (1st mortgage Utilitiy bonds of low investment grade, high sub to AAA taxable munis) and played all sorts of yield games that were available at the times (Declining interest rates, buying long term/short callable bonds at the call price, we took in double digit returns in 1 year paper when the market was 7% tops).


We found all manner of extra yield and there were times when we traded them pretty often (relatively). He was a mighty pain in the rump, he always wanted more of those 10% Monoghela waters(?) that I had to just about wrestle him to the ground to buy 25 of (on a $600M portfolio in house and plus $1MM in total financial assets) when rates went down. But it was fun.


Sal died and his widow and her spinster daughter(plus $600M herself) were clients who were emotionally attached to every bond that Sal bought. I don't know how many times I fired them. When I left, I sent them a letter, they said they were coming, then they thought different, I said I was sorry to see them go. I never called them again.


Point being, Business men buy bonds, Little Old Ladies... not so much. Point being that a guy with a dinky barber shop put together $1MM in bonds over his lifetime. Point being that bonds can be as much FUN to work on as any stock portfolio. It's just math with bonds, and you are looking for irregularities in the market.


All this having been bloviated. There is still no reason that we can't compare prices on dollar bonds, on Gov'ts and on CD's (which may well even be the same issue) and take a look at the man behind the curtain!


Mr. A



Compare prices? As I've said, it really can't be done on an apples to apples basis. Even if it could, what purpose would it serve? We all would still have to deal with our respective trading depts or traders. Nothing would change and nothing would be gained. Lastly, getting to a price checking situation with each other could become a monumental PIA. I spend too much time not working as it is.

Jan 16, 2007 7:39 pm

Knowledge is POWER


Mr. A