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Assured Guaranty Ltd. Message Board

  • prophet43m prophet43m Jan 3, 2010 12:30 PM Flag

    Exchange Traded Debt

    Tony, Rusty, Jim, and Persistentone:

    I know all of you follow the exchange traded debt and related markets (preferreds, trust preferreds, 3rd party trust preferreds) that are well documented at Quantumonline.com

    I have significant investments in the exchange traded debt and related markets. Even though most (but not all) of the issues have very long dated maturities (some with no maturities) and the liquidity is poor compared to common stocks I have come to really like the market over the past 1-1/2 years for the following reasons:

    (1)Even though liquidity is poor compared to common stocks, the liquidity, spreads, and tranparency are typically much better than the "normal" secondary corporate bond market. Therefore, if the investment rate landscape or my investment theses change, I believe I can over time exit my investments with minimal damage due to spreads (assuming I am not behind the curve). All things being equal, I would rather buy in the exchanged traded market rather than the "normal" secondary corporate bond market. (I have significant investments in both markets).

    (2)I have most often found the debt underlying the exchange traded instrument to be more favorably priced than the identical debt in the "normal" corporate bond market. This is probably due to the complaints and frustration Persistone has expressed.

    In the past few years, a few pioneering brokerage firms have opened up foreign stock trading. Recently Fidelity, who I have a large primary account with, has also opened up foreign stock trading in the following countries: France, Japan, United Kingdom, Germany, Italy, Canada, Netherlands, Belgium, Australia, Portugal, Hong Kong, and Norway.

    At the current time, I have little interest in common stocks (but I do own a few) nor do I have interest in most of the countries listed above. However, some of those countries are interesting to me. Some have worse demographics, currencies, and sovereign debt outlooks than the US but some have better outlooks.

    Canada for example, while having a higher debt to GDP ratio, may have a significantly better currency outlook due to the fact that the Canadian Dollar is a "resource" currency. To be sure there are already many Canadian stocks listed on US exchanges and I have owned several from time to time but that is not really what I'm driving at.

    Initially, I may be most interested in Austrailia and Norway. Austrailia is resource rich export economy with much more favorable nominal interest rates. I believe Norway actually runs a budget surplus and has a well funded retirement plan for all its citizens due to nationalization of its oil & gas industry for the benefit of the entire nation. By the way, my comments above are based upon what I think I know from reading over the years rather than from detailed research.

    So.....my long winded question is this....are any of you aware of an exchange traded debt market similar to ours in any of the countries listed above.

    I am well aware that many of the big Western European banks have trust preferreds listed here in our market....but so far I have not been interested in Western European banks based upon my belief that the big Western European banks are probably in worse shape than our own big US banks and the fact that I believe the political climate in Western Europe is more accepting of wiping out shareholders and bondholders.

    Comments, thoughts, knowledge to share?

    Happy New Year! And much investment success!

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    • The yield to call date for the PLP baby bond is worse than I thought. I got 4.27% on my HP programmable calculator. Can anyone verify my calculations? Here's my input:

      1.Present value 113.5% (22.70/20.00)
      2.Coupon is 8%
      3.Transaction date is 8/23/2010
      4. Call date is 10/14/2014

    • Further evidence of a bond bubble:
      PLP has a $20 par with a 8% coupon, but it's trading at $22.70 for a 13% premium. There's call protection to 2014. If I calculate yield to call date(10/15/2014) the real yield I'm guessing is closer to 6%. I need to verify with my HP programmable calculator. What does anyone else calculate the yield to call date to be using 22.70 for present value?

    • I'm now thinking we're going to start seeing more baby bond calls than we have in the past. The majority of baby bonds with a par of $25 are now trading over par as bond prices have risen in general. For example, this is true of the GE Capital bonds. If I were the CFO at GE I'd seriously consider calling in GEA with a coupon of 6.625% and offering one with a coupon of 6% for an annual savings of $625k per year. I don't think brokers will have any trouble placing a AA+ rated 6% coupon bond with yield hungry investors.

    • Jim, You're right I know they're not really preferreds, but senior debt. I was lazy in describing them. I only sold a small part of them and only to lower the weighting they have in my portfolio. I was able to buy something else at a slightly lower yield so the cash flow didn't change that much. I doubt if Wilbur is going to bail out on AGO

    • tony...! I know you of all posters knows the the AGO minis are not preferreds, I'm just answering you for the sake of the few other casual readers who are thinking you were asking about the "preferreds".

      It looks like a few desperate "dividend chasers" were piling on to capture the 43¢ payment due on 8-15 for owners of record on 7-30 for the -pB... big whoop. But still, where else are you going to find a S&P rated A+ DEBT yielding nearly 8%...? Only in the "financial" subset, like AGO, or AIG, or other bank or insurance "mini-bonds", but most of them are currently rated BBB or less. I'm "well diversified" but AGO is probably my 1st or 2nd largest holding... and I'm not lightening up, unless Wilber R bails :-)

    • Correction. It was AGOPB that reached 22 today.

    • Did any of you guys lighten up today on AGOPRF today? When it hit $22 I sold about 6% of my total AGO mini bonds. This was part of my diversification plan to lighten up on 3 AGO preferreds. It's taken longer than I expected. Now I have to find a home for the proceeds.

    • That makes sense. Thanks for the info and clarifying my understanding of the issue.

    • Fellow minibond guys how's this for illiquidity: 2 months back my purchase order for 400 KTBA was filled with 388. Today I was the sole seller the entire day and got $25.49. I'm not complaining since my cost was $24.75 and in addition I picked up one interest payment. I only mention it to point out the illiquidity of some pink sheet securities.

    • Hi Persistentone,

      I'm sorry to hear about your experience with NBG. At this price level I see little further downside risk. I'd ride it out despite the potential for dilution. The bank's not going out of business because it's too big to fail by Greek standards.
      I'm still staying away from all European debt issues including the stronger Swiss and German issues. The Euro keeps deteriorating and this will make EU investments less attractive. I frankly don't see why the Euro has any reason to be above parity with the US dollar

      Good luck to you.

    • View More Messages
 
AGO
22.16-0.35(-1.55%)Sep 30 4:02 PMEDT

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