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Fairfax Buys Majority of California's "Build America Bonds!"


Parsad
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These guys are amazing capital allocators. I say hold your shares and watch them work.

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aecq.uTk63M4&refer=home

 

California Build America Bonds Hand Buyers $212 Million Gains

 

Up 5% out of the gates with a 7.55% tax free yield.

 

This Broke State Could Reward You Handsomely

 

California recently issued $5.23 billion of 25 and 30-year BABs that pay an annualized rate of 7.4%. But with the Fed reimbursing it for 35% of the interest, the state will only be responsible for 4.8% in the end.

 

To get a similar yield in the in the corporate bond market, an investor could buy bonds of Amgen (Nasdaq: AMGN), Norfolk Southern (NYSE: NSC), or Verizon (NYSE: VZ), three solid companies that shouldn’t be going under any time soon.

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Deals such as this are the reasons why I have 17.82% of my portfolio is in Fairfax Financial!  My only regret was not buying more!!!!!  :)

 

These guys are amazing capital allocators. I say hold your shares and watch them work.

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aecq.uTk63M4&refer=home

 

California Build America Bonds Hand Buyers $212 Million Gains

 

Up 5% out of the gates with a 7.55% tax free yield.

 

This Broke State Could Reward You Handsomely

 

California recently issued $5.23 billion of 25 and 30-year BABs that pay an annualized rate of 7.4%. But with the Fed reimbursing it for 35% of the interest, the state will only be responsible for 4.8% in the end.

 

To get a similar yield in the in the corporate bond market, an investor could buy bonds of Amgen (Nasdaq: AMGN), Norfolk Southern (NYSE: NSC), or Verizon (NYSE: VZ), three solid companies that shouldn’t be going under any time soon.

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If it's not a tax free MUNI like bond, then that's not a great bet.

 

These things bare no more risk than U.S treasuries which are also taxable yet yield 54 million dollars per year  vs 33 million for 30 year treasuries... thats 630 million over 30 years

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isnt this about the same rate that they sold debt for. Now a bit of bad news.

 

Unlike conventional munis, which pay interest that is exempt from federal income tax, Build America Bonds are subject to federal tax. That means California paid a higher gross yield on the bonds than it would have paid on conventional munis.

 

 

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It's interesting to see the purchase of 30 year debt. The yield is good, but the duration is longer than usual. Are they building a deflation bet?

 

They would hedge more than 25% of their stocks if they were building a deflation bet.

 

I think they are making a "spread will tighten" bet, and getting paid well while they wait. 

 

The Julian Robertson "yields at 20%+" scenario they are not too worried about I suppose, unless they have some new hedges in place.  Or do they still have some CDS that would protect them?

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