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Intro To Bonds


jb85
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Was looking back over some buffett advice and found this from him: "The answer is still yes today that you can still earn extraordinary returns on smaller amounts of capital. For example, I wouldn’t have had to buy issue after issue of different high yield bonds. Having a lot of money to invest forced Berkshire to buy those that were less attractive. With less capital, I could have put all my money into the most attractive issues and really creamed it."

 

So basically I'm looking for exactly what this means.  I know a bit about bonds but am looking to learn a little more.  I've found the yahoo.com bond screener, but right now screening for bonds with yields of over 12% doesn't yield much (obviously). 

 

1) does this yahoo.com bond screener cover every bond in the US? or just the bigger companies?

 

2) is the a websit that lists ALL the corporate bonds for INTERNATIONAL companies?

 

3) any other general advice. Starting reading M. Whitman's Distressed Debt investing.  Any other suggestions on things to read or places to look?

 

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Fidelity promotes their fixed income capabilities but I haven't used their online search etc. So I cant speak to it. Large spreads are common and some issues probably difficult to source. Barrons and wsj have listings of wider traded issues. I don't know how to 'cream it' but have been able to find mis-pricing and buy appropriate chefs issues etc.

 

If I were going to research these I would look at the holdings of the better distressed bond funds - third ave Focused credit and others for ideas

 

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The odds are really stacked against the retail investor when it comes to the trading of high yield bonds (unless you are an investor that can comfortably trade in $1mm increments).  The best source for price information, as mentioned, is the finra website.  There are several caveats.  First, trade prices need to be viewed in the context of the size of a trade.  The round lot trade is $1 million bonds (on Finra, you'll see $1mm+ or perhaps 1000000).  Trades below that size are often at somewhat off-market prices.  As a retail investor, you won't know how bad a price you've paid relative to the market until you see how your trade is processed through the finra site. 

 

For illiquid bonds (and many high yield bonds trade infrequently), the last price paid may bear little resemblance to the current price (think small cap stocks).  The best source of market information is trading runs sent by brokers, but those runs are only sent to institutions.  Even then, if the bond trades infrequently, it can be difficult to know where the bond would trade and you'll have to put a firm bid into the market to test the waters.

 

The TRACE reporting system has helped a lot with regard to transparency, but it's still far from perfect. 

 

One thing to check - make certain the yield quoted by finra is a yield to worst and not a yield to maturity.

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Guest VAL9000

There's a small company in Canada that runs a transparent bond marketplace:

http://www.pfin.ca

 

They are owned by CI.  You can subscribe to their BondView service for $20/mo to get real-time "view only" access to all of the activity.

 

Also they have some free/publicly available information from their marketplace here:

http://www.canadianfixedincome.ca

 

- VAL9000

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