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Premium Bonds

Believe it or not, you just may get a bargain by paying a premium for a bond! A premium bond is one that sells at a price higher than its face value. Because people are generally resistant to paying a premium for anything, premium bonds frequently will be offered at a yield which is a few basis points higher than a comparable par or discount bond in order to “entice” investors to buy them.

We often say that premium bonds are “more defensive” because they can hold their value better than par or discounts when rates are rising. This is because of both math and the fact that its coupon is already ”up there” in the direction rates are going.

Premium bonds also may enable one to earn more “interest-on-interest,” because higher coupon payments provide more cash for reinvestment (and thus more interest payments received on the reinvestment).

Click for Premium Bonds PDF

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

Premium Bonds

Believe it or not, you just may get a bargain by paying a premium for a bond! A premium bond is one that sells at a price higher than its face value. Because people are generally resistant to paying a premium for anything, premium bonds frequently will be offered at a yield which is a few basis points higher than a comparable par or discount bond in order to “entice” investors to buy them.

We often say that premium bonds are “more defensive” because they can hold their value better than par or discounts when rates are rising. This is because of both math and the fact that its coupon is already ”up there” in the direction rates are going.

Premium bonds also may enable one to earn more “interest-on-interest,” because higher coupon payments provide more cash for reinvestment (and thus more interest payments received on the reinvestment).

Click for Premium Bonds PDF

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.

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