Sunday, September 20, 2009

Update on My Wife’s Junk

In one of those routine wanderings that people do while on the net pretending to be working, I waltzed over to Bank of America’s web site to check their CD rates.

One month: 0.30%
6 months: 0.50%
12 months: 0.95%


It only gets a bit better when you go out two to five years. (2 to 3%). Yes, FDIC insurance is included but only up to only $250,000.

BTW, notice how “interest checking” is accruing all of 0.01%. Seriously, how does BofA pay 0.01% and still call it “interest checking”?

Getting back to the rates, it’s got to be a tough pill to swallow if you’re a retiree or simply saving for something down the road and don’t want to risk it on the stock market.

Investors are moving into bonds. Can you blame them?

I’ve been harping on the issue for a while, I know. A few months ago, I ran a post describing my wife’s junk bond portfolio. It’s not the idea that those investments are specific recommendations. This was simply to show that a person with limited financial knowledge could put this together with a little help. So, other people can, too. (Notice I don’t say “anyone”, some people can’t or simply don’t care enough…but that’s for another post).

Here’s the link to that post. It’s not a long read.

My Wife’s Junk

Also, here is a table of what her portfolio looked like back then:


A few things have happened between then and now. First of all, none of these companies has gone bankrupt (despite all the talk of “default rates”). Second, most of these bonds have moved up in price and there has been some corporate action. Third, my wife has made some necessary changes.

First she sold her Home Depot bonds (number 6 on the list) The yield on these came down to well under 3% and that is the “mortgage threshold” in this household (might as well pay down the mortgage). I had mentioned that she was thinking about doing this.

The Corrections Corp bond (number 4 on the list) was called. For the bond newbies (like my wife): some bonds have a provision that allows the issuer to pay them back before maturity. That one did. They paid back two years ahead of time. It doesn’t matter if you tell them nicely to keep your money. They still pay you, even if you don’t want them to.

The Owens-Illinois bond got a tender offer (see my post about At 104%, for a bond with a year left, it was an offer she couldn’t refuse.

Here's the portfolio as of today. Click on the image to make it larger (and readable).

The new additions were as follows. The theme, is “flawed but fair”, as it should be with junk.

Interpublic 2014 6.25%. Interpublic is large global advertising company, whose claim to “shame” is being GM’s ad agency. The balance sheet checked out ok and, let’s face it, GM STILL needs to run ads. Now more than ever.

Dole Food 2013 8.75%. Food is stable business of course, but Dole was part of a leveraged buyout so it’s heavy on debt. But there is talk of taking the company public once again, which would improve the company’s balance sheet (and make the bonds less risky). S&P downgraded. Go Figure.

Continental Airlines 2011 8.75%. With this one, my wife kind of jumped right into the “risky” waters. Airlines are notorious for their tendency to go into bankruptcy and Continental has been in there –twice. But my wife figured, “hey, its only two years, Continental’s not doing that badly” and she has profits to fall back on. It’s always easier to take some risks when you’re already sitting on profits. S&P recently downgraded to CCC+ (from B-). The bond subsequently rose from 66% to 87%!

As for the rest of the portfolio, here is what it looks like now:

Advanced Micro Devices: This bond was downgraded from B to CCC+ by S&P in April. The bond has risen from 57% back then, to around 87% today. Thank you, S&P! In S&P’s defense, they are only assessing default risk, and not considering if the bond should rise in price. But seriously, do we really expect AMD, the world’s second largest microprocessor company, now with the backing of Middle East money, to go under?

Alcoa: Price is up, yield is down. Still beats the “mortgage benchmark”. So it stays.

Chiquita: Won’t go Bananas and sell now. S&P upgraded to B.

Davita: Has been stable, as expected. That’s why she bought it! (Dialysis Centers)

Jo-Ann Stores. This was upgraded to B- by S&P. This bond is going to a problem for my wife, because I believe it will probably be called next March. It’s hard to find, but if you want an easy 7%+ yield for about six months, I would recommend buying this (try to get it under par).

Seagate and Starwood. Nothing to say here. Just clipping coupons.

There it is, still short duration (average 3.35 yrs to maturity), still a decent overall yield (8.59%). A little riskier, perhaps (in S&P’s opinion). But my wife is still happy with it. And if she’s happy…well…you get the idea.

Note: comments now open to anyone. The death threats have waned. Just keep it on topic, ok?

The picture? Not my wife, but Ukrainian-born Olga Kurylenko, the latest “Bond Girl” (pun intended).


  1. bonds are the new stocks .... so they say.

  2. Why not let LSBRX manage your high yielding bond holdings? Their approach is probably the same as your wife's but they have investment analysts to back them up. They would also put your money in a much more diversified portfolio. You don't have to stress the defaults, they do that for you. The yield at this time is 6.86%. Yes, the interest rate is lower but one default might be enough to wipe out gains from the higher rate you are getting. Also it is easier to reinvest into a bond fund and create a cycle of increasing returns.

  3. Hi Newbietech. Thanks for stopping by. I figured we'd get to the Bond vs. Bond Fund debate, sooner or later.

    I'll write a post on the subject this week. There are Pros and Cons on bonds/bond with everything.

  4. How can I get into Bond Girl's junk?? ;)

    Seriously, what's the cosmic purpose of continuing to keep track of S&P and friends' ratings? Why do they still even exist?

    Congrats to your wife!