General Motors two year debt is currently yielding 7 to 8% because it was downgraded to junk not too long ago by standard and poors. I think this is one of the best deals out there in the entire market and I am adding significant amounts of this to my portfolio. If nothing happens in the underlying bond and you hold it to maturity you lock in a 7 to 8% yield. However, I do not think that GM will stay at junk for the entire period of two years and it is very likely to be upgraded. If that happens you stand to make a KILLING on the mark up in price. The only danger you have here is that GM goes out of business in the next two years, which is I feel not at all likely.
General Motors Two Year Bonds
- Thread starter Brandonf
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buying bonds or closed end funds? tickers?
thx
thx
I think I started a thread here a while back about XGM, GMW, etc. GM Senior Notes. They were all trading around $18.25 when I bought quite a bit (I bought XGM) and yielding about 9.25%. I have sinced sold them as they increased in value quite a bit. Right after the downgrade you saw lots of funds, pensions, etc that were forced to sell "junk" debt. This fire sale was not out of fear of GM Insolvancy, but was mandated by many charters of these organizations, stating that the fund cannot hold junk status instruments. Take a look at a historical chart of XGM and look at the massive decline in the couple weeks after the downgrade, and look at the pop back up since. I did very well XGM and really have no good reason why the notes would not return to $25 par value within the next 18 months.
I would not worry about GM defaulting on debt obligations. They have a ton of cash on their balance sheet and with the recent results of the employee pricing I think GM will pull itself together in the next decade.
Just thinking out loud here...
What if one were to buy the distressed debt and then purchase some catastrophe puts with the same time structure of the debt. (i.e. 2 years out). Granted the premiums were juiced as GM was sliding lower before the downgrades to junk, but Im certain that situation has changed.
Even though the chances are slim GM goes bankrupt, it might be more prudent to purchase the insurance just as a fail safe play.
What if one were to buy the distressed debt and then purchase some catastrophe puts with the same time structure of the debt. (i.e. 2 years out). Granted the premiums were juiced as GM was sliding lower before the downgrades to junk, but Im certain that situation has changed.
Even though the chances are slim GM goes bankrupt, it might be more prudent to purchase the insurance just as a fail safe play.
I attended a James Rogers presentation last week. In a rambling response to the question 'how to be a good contrarian,' Rogers said he had recently been buying airline bonds 'cause they were just so darn out of favor and bondholders were bound to get something, even in bankruptcy. And he's hugely bullish on commodities/oil, so go figure.
Speaking of Rogers, that was my first time meeting him - couldn't have been more impressed. My esteem multiplied 3x over. That said, I ain't buyin' no GM or airline bonds! Time value of money waiting to collect from the bankruptcy court just frightningly expensive, IMO.
Btw, you know GM is in trouble when Toyota is worried enough about their competitor & the political backlash of a bankruptcy to openly mention ways to help.
That said, if 'buy the fear' is your style, 'dem bonds just might fit the bill.
Speaking of Rogers, that was my first time meeting him - couldn't have been more impressed. My esteem multiplied 3x over. That said, I ain't buyin' no GM or airline bonds! Time value of money waiting to collect from the bankruptcy court just frightningly expensive, IMO.
Btw, you know GM is in trouble when Toyota is worried enough about their competitor & the political backlash of a bankruptcy to openly mention ways to help.
That said, if 'buy the fear' is your style, 'dem bonds just might fit the bill.
So you are getting maybe 3-3.5% over the risk free rate for the two years. Less if rates ratchet up. It's not 8% vs zero percent.
Chances are you will collect, but is it worth the hassle if conditions deteriorate in say a year or so?
I held a small amount of GMAC during the 'noise' and didn't like it. It matured and that was that.
GMAC smartnotes not yielding anything like 8% at 2year. More like low 6's
Chances are you will collect, but is it worth the hassle if conditions deteriorate in say a year or so?
I held a small amount of GMAC during the 'noise' and didn't like it. It matured and that was that.
GMAC smartnotes not yielding anything like 8% at 2year. More like low 6's