It is understandable that people are reluctant to purchase income products with benchmark yields near record lows. As yields plunged during the summer months, it became more and more difficult to find individual bonds with risk-adjusted returns suitable for many portfolios. But, just because you might not be able to find a bond you think is worth buying today doesn’t mean you shouldn’t prepare for the future.
It seems like virtually everyone thinks interest rates can only go higher over the coming years. While this point is certainly debatable, on the chance it does happen, it will pay to be prepared. So start building that shopping list. Make a list of corporate bonds you are interested in owning. Do your research now. Find a wide range of bonds from across the ratings spectrum and make sure you follow the prices so that you know when your favorite bond is getting close to your entry point. Get that shopping list ready now and start by taking a look at these six bonds:
Chesapeake Energy’s (CHK) senior unsecured note (CUSIP: 165167CF2) maturing 8/15/2020 has a coupon of 6.625% and is asking 107 cents on the dollar (5.594% yield-to-maturity before commissions). It has a make whole call and pays interest semi-annually. Moody’s currently rates the bond at Ba3; S&P rates it BB+ (non-investment grade ratings). The bond was originally offered at a price of 100, and the offer size was $1.4 billion. The offer date was August 9, 2010. This note has traded in a range of 104.231 (on 12/1/11) to 109.24 (on 12/7/11) since December 1, 2011. Currently, the 8/15/2020 U.S. Treasury note (CUSIP: 912828NT3) is yielding 1.827%, which means Chesapeake Energy’s note is asking 376.7 basis points more than a corresponding Treasury note.
Valero Energy’s (VLO) senior unsecured note (CUSIP: 91913YAL4) maturing 6/15/2037 has a coupon of 6.625% and is asking 106.909 cents on the dollar (6.088% yield-to-maturity before commissions). It has a make whole call and pays interest semi-annually. Moody’s currently rates the bond at Baa2; S&P rates it BBB. The bond was originally offered at a price of 99.713, and the offer size was $1.5 billion. The offer date was June 5, 2007. This note has traded in a range of 104.857 (on 12/9/11) to 110.048 (on 12/7/11) since December 1, 2011. Currently, the 2/15/2037 U.S. Treasury bond (CUSIP: 912810PT9) is yielding 2.974%, which means Valero Energy’s note is asking 311.4 basis points more than a corresponding Treasury bond.
Mattel’s (MAT) senior unsecured note (CUSIP: 577081AU6) maturing 10/1/2040 has a coupon of 6.20% and is asking 111.335 cents on the dollar (5.418% yield-to-maturity before commissions). It has a make whole call, conditional puts for a change of control, and pays interest semi-annually. Moody’s currently rates the bond at Baa1; S&P rates it BBB+. The bond was originally offered at a price of 99.419, and the offer size was $250 million. The offer date was September 23, 2010. This note has traded in a range of 106.153 (on 12/8/11) to 109.622 (on 12/2/11) since December 1, 2011. Currently, the 11/15/2040 U.S. Treasury bond (CUSIP: 912810QL5) is yielding 3.066%, which means Mattel’s note is asking 235.2 basis points more than a corresponding Treasury bond.
Ball Corporation’s (BLL) senior unsecured note (CUSIP: 058498AQ9) maturing 5/15/2021 has a coupon of 5.75% and is asking 105 cents on the dollar (4.889% yield-to-par call before commissions). It has a conditional puts for a change of control, pays interest semi-annually, and has the following call schedule: Beginning November 15, 2015, it is callable at the greater of 102.875 or make whole. Starting on November 15, 2016, it is callable at the greater of 101.917 or make whole. November 15, 2017 begins the period when it is callable at the greater of 100.958 or make whole. And November 15, 2018 through maturity, the note is callable at the greater of 100 or make whole. Moody’s currently rates the bond at Ba1; S&P rates it BB+ (non-investment grade ratings). The bond was originally offered at a price of 100, and the offer size was $500 million. The offer date was November 15, 2010. This note has traded in a range of 101.962 (on 12/1/11) to 104.75 (on 12/2/11) since December 1, 2011. Currently, the 5/15/2021 U.S. Treasury bond (CUSIP: 912828QN3) is yielding 1.965%, which means Ball Corporation’s note is asking 292.4 basis points more than a corresponding Treasury bond.
Ford Motor Company’s (F) senior unsecured note (CUSIP: 345370BT6) maturing 2/15/2028 has a coupon of 6.625% and is asking 102.366 cents on the dollar (6.387% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the bond at Ba2; S&P rates it BB+. The bond was originally offered at a price of 98.285, and the offer size was $300 million. The offer date was February 18, 1998. This note has traded in a range of 98.02 (on 12/9/11) to 109.163 (on 12/9/11) since December 1, 2011. Currently, the 11/15/2027 U.S. Treasury bond (CUSIP: 912810FB9) is yielding 2.637%, which means Ford’s note is asking 375 basis points more than a corresponding Treasury bond.
JPMorgan Chase’s (JPM) senior unsecured note (CUSIP: 46625HJB7) maturing 7/15/2041 has a coupon of 5.60% and is asking 108.824 cents on the dollar (5.024% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody’s currently rates the bond at Aa3; S&P rates it A. The bond was originally offered at a price of 99.569, and the offer size was $1.75 billion. The offer date was July 14, 2011. This note has traded in a range of 104.406 (on 12/1/11) to 109.689 (on 12/8/11) since December 1, 2011. Currently, the 11/15/2040 U.S. Treasury bond (CUSIP: 912810QL5) is yielding 3.07%, which means JP Morgan’s note is asking 195.4 basis points more than a corresponding Treasury bond.
If you are interested in purchasing any of these securities but are nervous about counterparty risk wreaking havoc on your portfolio, learn how to hedge individual bonds in, “Protect Your Income Portfolio With Cross-Asset Hedging.”
Please be aware that prices in the over-the-counter U.S. bond market may vary depending on the broker you use. The current prices may also differ greatly from those listed at the time this article was written. For additional information on any of these notes, please contact your broker or read the indenture.
Also, please do your own due diligence on the financial profiles of the companies mentioned in this article. Only you can determine if taking the counterparty risk of purchasing individual bonds is suitable for you.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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