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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Seeking a hot 'safe' bet? Hot is never safe |
| Chicago Tribune - January 28, 2009 - Gail MarksJarvis
We've entered a period when people can seriously hurt themselves.
Given the decline in the market, many people want nothing to do with stocks. So the sharks are circling. They know that people are scared and might fall for a sales pitch that combines the words "safe" and "hot investment"—two opposites that don't go together.
Bonds suddenly are hot. Brokers know that their clients are afraid of stocks and frustrated with low interest on certificates of deposit and safe U.S. Treasury notes. So brokers are calling risk-averse clients, offering corporate bonds that sound good because they have recognizable names.
One I heard about Tuesday was a Weyerhaeuser bond.
There's nothing wrong with Weyerhaeuser, but there is risk in its bonds, as well as bonds from a wide range of companies.
As the recession deepens, more companies will have trouble selling products. As their finances weaken, investors will become nervous and bond prices can drop. In the worst cases, companies can end up in bankruptcy, and people holding corporate bonds can end up getting a third, or even less, of their money back.
So this is no environment to blindly accept a suggestion from a broker simply because you recognize the name on a bond. Realize that brokers generally are not equipped to do the analysis required to see if a company will remain strong and be able to keep paying bond investors.
Also, do not get taken in by a familiar name. Lehman Brothers was, and it's in bankruptcy.
Instead, consider the yield on a bond. You might, for example, be attracted to Weyerhaeuser because bonds maturing in 2012 are yielding about 8 percent. But at a time when safe three-year U.S. Treasury notes are yielding only about 1.15 percent, there is a reason for the significantly higher yield on the Weyerhaeuser bonds. The yield is high to entice investors to take a chance on a forest products company that has a lot of debt to pay off or refinance, when it's difficult to obtain a loan.
The rating on Weyerhaeuser's bond is a tip about the chances an investor will take. A broker might tell an individual that the bond is safe because it is what's called "investment grade." But a closer look shows that while it is investment grade—or a bond safer than "non-investment grade," or "junk"—these bonds are at the bottom of the safer range. They are rated BBB instead of AA or AAA, which would be much safer.
Still, some professional investors are skeptical about relying merely on those ratings. After all, companies such as Lehman were rated A as the company went into bankruptcy.
Increasingly money managers who are choosing bonds are looking for other measures. One is called the Altman Z score, and indicates whether a company is at risk of going into bankruptcy within two years. Trying to figure out the score takes some expertise, although you can do it with a calculator at creditguru.com/CalcAltZ.shtml.
For those unable to do the calculation, just ask your broker for the Altman Z score.
If a bond's Z score is above 3, that's good. If it's between 1.8 to 2.7, it's riskier—with a stronger chance of facing bankruptcy. Under 1.8 is even riskier, and according to Bloomberg, Weyerhaeuser's Altman Z Score is just 1.63. Zero is considered a strong predictor of bankruptcy; the score can even go negative.
This site will help you interpret the score your broker gives you: grahaminvestor.com/articles/altman-z-score.
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| Stuff to look at |
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