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Hi all, forgive me for sounding like an idiot but although I know plenty about buying shares, I know absolutely nowt about buying and selling bonds. I dont even know the how to buy and where to buy them.


Is anyone interested in getting up a bond discussion thread?


Al Kohler's eureka report is giving plenty of motivation to get into the bond buying scene, and a lot of other commentary is suggesting that some bonds may be the way to go at the moment.


Anyone any thoughts?

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Yep, i would be keen in a discussion thread on bonds.. both CGS and also corporate/credit securities.


Fixed interest funds have been earning double digit returns over the last 12 months, and with credit spreads still at extremely wide levels, they are a very attractive investment, despite the levels of default inplied in the spreads



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Hi mosc,


Direct buying of bonds revolves around the big kids.There are fixed interest dealers (google ) and the big brokerage houses.Usually you need $500 k to buy a bond.ie;denomination is 500 k.Technically,long term bonds have topped out in my opinion:I'd stay away.I posted a chart of these -under cash is king I think.


Personally I reckon Hybrids are the way to travel as these track (or should track) 90 or 180 bill rates.Have a look at GNSPA.AAZPB (see apost under ALZ for details ).For a listed rated bond like structure see MQCPA:it will pay you 12% for 5 years and is way underpriced at $95.00

Hope this is of interest..



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Re-read my post and realised it does not mention the many "Fixed Interest" funds that contain a mixture of cash,debt securities etc,etc.Very mixed bags which need a bit of specific questioning of the fund manager.All these funds are unlisted (as far as I know) so the usual fees apply.There are presently bargains in the corporate bond sector.The large Fund managers buy these as part of "fixed Interest" funds or as a component of so called "Balanced Funds".The Bond markets are huge.My recollection is that in dollar terms are greater than the equity markets.
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Bond markets are significantly larger than equity markets.


Alot of corporate bond trading is done OTC. If you are a retail investor you have 2 options:


1. Contact one of the main dealers yourself and transact (note you will be looking at $500k parcels), or


2. Invest through a managed fund.


There are plenty of fixed interest funds (as distinct from Cash or Cash Enhanced funds) that invest in corporate debt. This includes bank senior and subordinated debt, along with corporate bonds and securitised assets such as ABS and RMBS.

Over the last 12 months these have produced double digit returns, and with credit spreads still extremely wide, are forecast to do the same for the next year or two.


Just as an aside, did you know you can buy protection on the risk of the Australian government defaulting on its debt?! These securities are called credit default swaps, and are priced as a margin over BBSW (BBSW is the rate at which banks lend to eachother, and are indifferent between holding fixed or floating rates).


Before the credit crisis, semi government securities would trade say 20bps below BBSW and government securities would trade say 20bps below that.

Now, you can buy protection against the Oz government defaulting at 120bps ABOVE BBSW!


Its amazing!


(Available to institutional investors only... unless you have at least $1m)


And yes, I know that the AOFM are increasing the amount of CGS issuance (there is another tender tomorrow for $600m and again on friday.. in fact, its twice weekly until the end of the financial year, as the budget will be in deficit $22bn), but there is no way that that kind of margin above BBSW reflects the credit risk of Australian government debt.


So yes, there is severe mispricing in fixed income markets, just as there is in the equity market

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Thanks Gents, so basically the best bet is to get into stocks which play bonds? (short of handing over gold bars I mean)


I know what you mean with the pricing of sovereign debt. I really am in Moscow and the pricing of CDS on Russian debt has gone completely berko (in a country which - certainly has its issues - has the third largest fiscal reserves going).

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Hi Livas. Thanks for that informative post.Feel a bit of a dope responding to moscowman when we have an obviously professional opinion available!Maybe you can suggest some fixed funds with assessment of risk.I for one would be interested.


In some other posts I've been on about Hybrids ,some which seem to offer great value compared to risk.EG SEVPC (or is it SEVPC?). SEV has $1.5 billion in the bank and the hybrids step up in 16 months.Currently $80.00.I'm sure you know many others.



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Hi wren


Sorry for only getting back to you now.


I am not in a position to be able to recommend any funds, but I can tell you that most of the Australian fixed interest funds are pretty good.


I think the High Yield model is out of favour for the time being so I would be wary of some of them (Challenger High Yield fund was perhaps the most popular HY fund out there and they froze redemptions late last year and now Lonsec come out with a "Redeem" recommendation... Lonsec are a bit like the rating agencies.. ie shooting the guy after his dead, but anyway, I digress :P ).


Yes, the HY funds that are still around are ok, but just have a look at what their neutral asset allocation is and also what is their benchmark. Most typically try and outperform cash over a rolling 3 year period, which is fine, but what is the volatility of returns.


There are obviously good bargins in the hybrid space so if you can wear a bit of volatility you should do pretty well.


FI funds on the other hand probably wont invest in hybrids but they will hold alot of corporate bonds which are also yielding pretty high returns. The secondary market has opened up a bit this year so there is certainly alot more liquidity. Having said that, some of the corporate issues are being priced as if there isnt any liquidity.

So the FI funds give you a bit more diversity, and obviously higher up the capital structure as they typically invest in senior issues, senior secured issues, and in some cases (namely the banks) subordinated pieces.


As a broader theme, the discounted equity raisings happening all over the place is very good for bondholders, as it provides an extra level of protection.

Companies are also being severly hamstrung atm by having to dilute equity holders bc they have debt that is maturing that they cant roll over.


If you want a high risk hybrid, then the PXUPA is an interesting one. PPX are stuffed atm, and need to sell assets (difficult in this environment) or refinance (they are working with their lenders as they have breached their debt covenants), but the hybrid will pay a $3 distribuion at the end of June. The price is around $12 so its a pretty attractive yield, but you have to like the story bc they will get converted into equity IMO.

So you need to make sure the equity will be worth something...


STOPB is a good one as is the Woolworths hybrid. MAZPA is also a good one with the portfolio of securities backing it now.


Its certainly fun times in credit markets :)

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Hu Livas,

Thanks for your input--learnt a few facts .Interesting point wrt recent capital raising by issuing 'discounted' equity.Looking through 'the list' ,we find AAZPB and GNSPA. (I own both).Anything is possible, however seems unlikely GNS--the company everyone seems to hate--could go under.They have been paying F/F Divs. forever which usually indicates even clever accountants can't dig up any losses. They also raised$450 mill. at $1.50 and sold the rights to a woodlot for $175 mill. ALZ is 60% owned by the S'pore Govt.linked fund.After chucking in $500 mill. recently, doesn't seem likely they would let it go under.(wouldn't anyway imo).

Your point re:Challenger is interesting.Some commentators blame redemptions which have resulted in "forced" selling by such funds as the reason behind the very weak prices of Hybrids.Makes some sense.

PXUPA may be a bit hot for me:what are their assets really worth-that's the question!I reckon BEPPA is worth a small position.Potentially very high reward if (that word again ) BBI keeps going.Oddly to me ,most analysts rate BBI a 'hold' or better.

We live in tricky times!

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