AlisterTalksBonds.com Sharon Alister logo

Search

stifel logo
 
AlisterTalksBonds.com Sharon Alister logo

Search

stifel logo
 

AlisterTalk

ALISTERTALKsm


Bond Ladders

Bond Ladders
SUMMARY:
A “bond ladder” structure of bonds is one in which bonds in a portfolio are redeemed at different times over a period of years, with each bond becoming due at a different “rung” or year on the redemption ladder. In this way, the portfolio is sure to have a mix of short-term, intermediate, and long-term bonds. This is an easy and reliable way to help insulate a portfolio from interest rate risk.

But how do you determine where on the ladder to place a particular bond: By its call year? Its sinking fund year? Its maturity year? How do you determine whether to weight one time segment of the bond ladder more or less heavily than the other segments, and by how much? These are issues that must be addressed in building a bond ladder.

Bond Laddering does not assure a profit or protect against a loss in a declining market. Yields and market values will fluctuate, and if sold prior to maturity, bonds may be worth more or less than the original investment.

Click for Bond Ladders PDF

Back to Top

 


Bond Ratings

Moody’s Ratings Standard & Poor’s
Investment Grade Aaa
Aa
A
Baa
AAA
AA
A
BBB
……………………. ……………………. …………………….
Speculative “Junk” Grade Ba
B
BB
B
……………………. ……………………. …………………….
“Junk” Caa
Ca
C
CCC
CC
C
 …………………….  …………………….  …………………….
Default D D

Bonds rated below investment grade have greater credit risk than higher quality bonds and should not be over-emphasized in any portfolio.

Click for Bond Ratings PDF

Back to Top

 


Tax Loss Swapping

SUMMARY:
In preparation for tax day, it is worth your while to consider “swapping” bonds in your portfolio that have dropped in value from the price you paid for them. Sell a bond at a substantial loss and buy a very similar, but not identical bond in exchange. Swapping bonds in your portfolio in this way may not materially change the portfolio’s overall value, but it may create a very useful tax loss. Is this the right strategy for you?

You should consult your professional tax advisor regarding your particular situation. 

Click for Tax Loss Swapping PDF

Back to Top

 

 


Inverted Yield Curve

 

inverted yield curve

SUMMARY: 
Normally, short-term bonds yield less than long-term bonds (normal yield curve). But when the Fed raises the short-term rates (1 year or less), intermediate and long-term rates can fall below the rates you’ll find for short-term offerings. This is an “inverted yield curve”: When short-term rates are higher than longer-term rates.

Don’t be tempted by short-term yields, however! When those short-term bonds mature, you may need to invest those funds somewhere else. By then, if the economy has slowed, intermediate and long-term bond rates may have already fallen a lot. What should you do?

Click for Inverted Yield Curve PDF

Back to Top

 


Municipal Bonds

SUMMARY:
The municipal bond market is huge, encompassing hundreds of billions of dollars in outstanding debt from communities, universities, hospitals, and other “municipalities.” The interest income for most municipal bonds is free from Federal income taxes. State and alternative minimum taxes may still apply, as may capital gains tax if bonds are sold prior to maturity.

Because municipalities operate differently from corporations, the criteria is different for determining the creditworthiness of municipal bonds. Are insured municipal bonds a safer investment? Is a General Obligation bond, whose debt obligation can be paid by raising taxes of the citizens of that municipality, worth more than other bonds with the standard ratings of A, AA, AAA?

Please note: Sharon Alister does not give tax advice. Any person considering an investment or portfolio management strategy should consult with his or her own tax advisor.

Read the FAQs on Municipal Bonds, too!

Click for Municipal Bonds PDF

Back to Top

 


Investment Portfolio as a Machine!

SUMMARY:
Your investment portfolio should be like a machine, producing money for your use without removing parts of the machinery. To do this, I believe an investor needs to have an investment presence in each of the main asset categories: Cash, Stocks, and Bonds.

Assessing the risk of different securities in each asset class should not be dominated by “shoebox mentality,” which is what I call the psychological urge people have to be able to count and feel each penny! Each asset class offers investments that cover the entire range of “riskiness,” and each investor most likely will be able to find investments to suit his/her risk tolerance level in each asset class.

Asset allocation does not assure a profit and may not protect against loss in a down market.

Click for Investment Portfolio as a Machine PDF

Back to Top

 


A Risky Looking Bond May Not Be What It Appears

SUMMARY:
Many investors who are tolerant of the risks of owning stocks, even growth stocks with outrageously high price/earnings ratios, categorically refuse to consider a below investment-grade bond.  These lower rated bonds are called High Yield (or Junk) Bonds.  This may be overlooking a potentially profitable security whose risk characteristics you could find acceptable as part of your portfolio.

Understanding a corporation’s financial situation and the research analysis which has lead to its stock being recommended may go a long way toward easing fears of purchasing a BB-rated situation.  A “Make Whole Default Call”  may also bring added comfort. Similarly, bond ratings do not change as quickly as the news that leads to them. For example, any pending take-over details or presence on the watch list for positive indications may be additional factors to consider in evaluating the bond’s risk level.

When investing in bonds, it is important to note that as interest rates rise, bonds prices will fall.

Click for A Risky Looking Bond May Not Be What It Appears

Back to Top

If your portfolio is greater than $500,000, Sharon Alister can provide a free analytic review to help ensure that your portfolio is in line with your investment goals. Call Sharon Alister at (800) 745-7110 or email info@AlisterTalksBonds.com

 

Interest Rates (Indications only)

Please note the rates for Ins’d and Pre-Res are not available from Bloomberg and will be updated as soon as possible.

Treasuries AAA Munis
3mo 1.815 N/A
6mo 2.009 N/A
1yr 2.237 1.74
2yr 2.482 1.87
5yr 2.809 2.19
10yr 2.970 2.53
30yr 3.145 3.14
today's rates chart

AAA Rated Munis

Pre-Res Ins’d Pure*
2 yr 1.91 2.05 1.87
5 yr 2.23 2.49 2.19
10 yr N/A 2.89 2.53
15 yr N/A 3.20 2.82
30 yr N/A 3.50 3.14

*Rated AAA on its own
Source: Bloomberg

AlisterTalk

ALISTERTALKsm


Bond Ladders

Bond Ladders
SUMMARY:
A “bond ladder” structure of bonds is one in which bonds in a portfolio are redeemed at different times over a period of years, with each bond becoming due at a different “rung” or year on the redemption ladder. In this way, the portfolio is sure to have a mix of short-term, intermediate, and long-term bonds. This is an easy and reliable way to help insulate a portfolio from interest rate risk.

But how do you determine where on the ladder to place a particular bond: By its call year? Its sinking fund year? Its maturity year? How do you determine whether to weight one time segment of the bond ladder more or less heavily than the other segments, and by how much? These are issues that must be addressed in building a bond ladder.

Bond Laddering does not assure a profit or protect against a loss in a declining market. Yields and market values will fluctuate, and if sold prior to maturity, bonds may be worth more or less than the original investment.

Click for Bond Ladders PDF

Back to Top

 


Bond Ratings

Moody’s Ratings Standard & Poor’s
Investment Grade Aaa
Aa
A
Baa
AAA
AA
A
BBB
……………………. ……………………. …………………….
Speculative “Junk” Grade Ba
B
BB
B
……………………. ……………………. …………………….
“Junk” Caa
Ca
C
CCC
CC
C
 …………………….  …………………….  …………………….
Default D D

Bonds rated below investment grade have greater credit risk than higher quality bonds and should not be over-emphasized in any portfolio.

Click for Bond Ratings PDF

Back to Top

 


Tax Loss Swapping

SUMMARY:
In preparation for tax day, it is worth your while to consider “swapping” bonds in your portfolio that have dropped in value from the price you paid for them. Sell a bond at a substantial loss and buy a very similar, but not identical bond in exchange. Swapping bonds in your portfolio in this way may not materially change the portfolio’s overall value, but it may create a very useful tax loss. Is this the right strategy for you?

You should consult your professional tax advisor regarding your particular situation. 

Click for Tax Loss Swapping PDF

Back to Top

 

 


Inverted Yield Curve

 

inverted yield curve

SUMMARY: 
Normally, short-term bonds yield less than long-term bonds (normal yield curve). But when the Fed raises the short-term rates (1 year or less), intermediate and long-term rates can fall below the rates you’ll find for short-term offerings. This is an “inverted yield curve”: When short-term rates are higher than longer-term rates.

Don’t be tempted by short-term yields, however! When those short-term bonds mature, you may need to invest those funds somewhere else. By then, if the economy has slowed, intermediate and long-term bond rates may have already fallen a lot. What should you do?

Click for Inverted Yield Curve PDF

Back to Top

 


Municipal Bonds

SUMMARY:
The municipal bond market is huge, encompassing hundreds of billions of dollars in outstanding debt from communities, universities, hospitals, and other “municipalities.” The interest income for most municipal bonds is free from Federal income taxes. State and alternative minimum taxes may still apply, as may capital gains tax if bonds are sold prior to maturity.

Because municipalities operate differently from corporations, the criteria is different for determining the creditworthiness of municipal bonds. Are insured municipal bonds a safer investment? Is a General Obligation bond, whose debt obligation can be paid by raising taxes of the citizens of that municipality, worth more than other bonds with the standard ratings of A, AA, AAA?

Please note: Sharon Alister does not give tax advice. Any person considering an investment or portfolio management strategy should consult with his or her own tax advisor.

Read the FAQs on Municipal Bonds, too!

Click for Municipal Bonds PDF

Back to Top

 


Investment Portfolio as a Machine!

SUMMARY:
Your investment portfolio should be like a machine, producing money for your use without removing parts of the machinery. To do this, I believe an investor needs to have an investment presence in each of the main asset categories: Cash, Stocks, and Bonds.

Assessing the risk of different securities in each asset class should not be dominated by “shoebox mentality,” which is what I call the psychological urge people have to be able to count and feel each penny! Each asset class offers investments that cover the entire range of “riskiness,” and each investor most likely will be able to find investments to suit his/her risk tolerance level in each asset class.

Asset allocation does not assure a profit and may not protect against loss in a down market.

Click for Investment Portfolio as a Machine PDF

Back to Top

 


A Risky Looking Bond May Not Be What It Appears

SUMMARY:
Many investors who are tolerant of the risks of owning stocks, even growth stocks with outrageously high price/earnings ratios, categorically refuse to consider a below investment-grade bond.  These lower rated bonds are called High Yield (or Junk) Bonds.  This may be overlooking a potentially profitable security whose risk characteristics you could find acceptable as part of your portfolio.

Understanding a corporation’s financial situation and the research analysis which has lead to its stock being recommended may go a long way toward easing fears of purchasing a BB-rated situation.  A “Make Whole Default Call”  may also bring added comfort. Similarly, bond ratings do not change as quickly as the news that leads to them. For example, any pending take-over details or presence on the watch list for positive indications may be additional factors to consider in evaluating the bond’s risk level.

When investing in bonds, it is important to note that as interest rates rise, bonds prices will fall.

Click for A Risky Looking Bond May Not Be What It Appears

Back to Top

If your portfolio is greater than $500,000, Sharon Alister can provide a free analytic review to help ensure that your portfolio is in line with your investment goals. Call Sharon Alister at (800) 745-7110 or email info@AlisterTalksBonds.com

 

Interest Rates (Indications only)

Please note the rates for Ins’d and Pre-Res are not available from Bloomberg and will be updated as soon as possible.

Treasuries AAA Munis
3mo 1.815 N/A
6mo 2.009 N/A
1yr 2.237 1.74
2yr 2.482 1.87
5yr 2.809 2.19
10yr 2.970 2.53
30yr 3.145 3.14
today's rates chart

AAA Rated Munis

Pre-Res Ins’d Pure*
2 yr 1.91 2.05 1.87
5 yr 2.23 2.49 2.19
10 yr N/A 2.89 2.53
15 yr N/A 3.20 2.82
30 yr N/A 3.50 3.14

*Rated AAA on its own
Source: Bloomberg

Investing involves risk, including possible loss of principal. When investing in bonds, it is important to note that as interest rates rise, bond prices will fall. Conversely, as interest rates fall, bond prices will rise.

Copyright © 2013 | Stifel, Nicolaus & Company, Incorporated. Member SIPC & NYSE, All Rights Reserved