In 2009 you could inventory at par bonds like Valero, Altria, Lubrizol and Rio Tinto, all carrying 9 percent coupons.
But for your Uncle Al living in Boca, if he is paying 20% over the value of Treasury bonds at par today to get interest payments of just 1.6%, he is going to get next to nothing in real income after inflation, and he is going to watch the value of his bond plummet once interest rates start rising again, forecast to occur by 2014.
At present, we can have no guarantee that the sales of these bonds will occur at par value.
Greek banks are frantically borrowing euros from the ECB, using Greek government bonds (valued at par, not at market) as collateral.
With our new conservative capital structure those bonds will sell at par.
If you are going to use a discount rate of 6% AND assume the bonds are selling at par, then you MUST assume that the coupon on the bond is also 6%.
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Unlike most municipal paper, these bonds were taxable and priced at par to yield 8% to maturity in 2006.
Heiner Skaliks, fund manager of the Strategic Latin America (SLATX), a balanced mutual fund, said that investors can find investment grade bonds that are even trading below par, but have substantial upside.
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The longer dated bonds are trading at 50% of par or below in the markets.
Now, with rates down, the bonds had appreciated to 16% above par.
Sean Greene assured me that none of this will cost taxpayers a dime, because the government simply guarantees loans 10-year maturity bonds raised from private investors at rates slightly above par.
The bonds are priced at 102, yielding 7.2% to the call (at par) in 2019.
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