Been doing a lot of reading but still have a few questions.
- Whenever I read about bonds there's always a doom/gloom warning about rising interest rates. But I also read (and suspected, link below) that this is utterly irrelevant if you hold the bond to maturity.
https://www.quora.com/Do-bond-prices-matter-if-you-hold-them-to-maturity
For people like me (more of a buy-and-hold than a daytrader), seems like if I were to buy a corporate bond and hold to maturity - it's a reasonable investment. (bond fund question coming below).
2)
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C642059&symbol=DTEGF4307780
Am I reading this right - here is a high-yield bond with an original coupon of 6.5% selling now for about $105. Because I'd have to pay above the (assumed) original offer price of $100 per bond, my effective rate (also listed on the page in the link) is 5.096%. For every $100 I put in, I will get $5.09 per year until 2026. Starting in 2021 T-mobile could call the bond only paying me $100 for every $105 I put in.
Am I reading that correctly?
3) Also all the bonds on Finra seem to be listed as originally offering at $100 - somehow I expected $1000 per bond. Is $100 or $1000 common denominations for bonds?
4) The T-mobile bond I linked above is "high-yield" aka "junk". Now I can do lots of research into T-mobile's debt and projections, but I'm assuming smarter people than me already did that and gave it the rating it has. In other words, the bond rating is short-hand for that research - correct?
5) If I buy a Bond fund - I no longer get the "hold to maturity" protection against interest rates because I don't have control over when the fund manager decides to buy or sell or hold-to-maturity. This makes actual bonds more interesting to me in that if I definitely plan to hold to maturity - I definitely get the interest and my principal back. A bond fund feels like a play against interest rates and a hedge (in certain types of markets) against stocks. It seems very unlike an investment of a hold-to-maturity bond purchase. Correct?
6) Risk - I totally get inflation risk but I could argue that it's not dissimilar from owning a stock. Hold-to-maturity Bond purchases will not chase inflation where stocks will tend to, but it doesn't seem instantaneous in the latter case.
The other risk I hear is "and you're screwed if the company defaults - never buy high-yield unless you know what you're doing". Again I'm concerned this is an overblown concern. I say that because in case of any default, bond holders get paid before shareholders. I never hear anyone say "Be careful buying that stock because the company might go bankrupt!". Maybe with penny stocks but my example above is T-mobile. Is there some extra concern buying a T-mobile high-yield bond over just buying T-mobile stock? Seems like the default risk is small in any case but actually higher for the stock than the bond !
https://bankruptcy-law.freeadvice.com/bankruptcy-law/business_bankruptcy/paid_bankruptcy.htm
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Thanks to anyone answering. Happy hear anything I'm missing but my point is I actually see a reason to buy bonds directly over bond funds or stocks.
Submitted January 20, 2019 at 04:10PM by showgarzn http://bit.ly/2FL63VK
