In all honesty I am very doubtful of rates rising and if they do I am fine with 5.8 on one bond even if it was never called.What you're missing is that if rates rise, that agency bond will drop in value; the corporate bond won't. As rates rise significantly above the agency bond's coupon, the bond behaves like a non-callable bond in terms of duration risk (because it won't get called).Am I missing something?
I have one specific item and then just carrying that over to overall fixed income portfolio going forward.
I have a 50,000 AAA corp bond yielding 3.125 that matures 11/25 with $75 accrued interest that I bought 8 years ago.
I can buy a 2 year AAA agency at 5.85 that is not callable until 5/26.
I like extending the better rate and would earn more money even with the the original bond selling for $48,772.
It seems like a positive trade unless I am missing something.
The agency bond is a 20 year which I am completely fine with.
Thanks
But if rates fall and there's a likelihood of the bond being called, its price rises only so much (it won't go much above par value). So you won't benefit from rising prices that otherwise happens with non-callable bonds.
With a yield of only 5.85%, that bond is paying only 1.2% above a 20Y Treasury bond. That's a small premium. Last year I bought an agency bond that yielded 2.4% above Treasuries.
I am fine either way and fully understand your point and thought about it before deciding to buy it.
Statistics: Posted by hoops777 — Fri May 17, 2024 10:41 pm — Replies 3 — Views 337