Were you not the one who stated a bond's price can never trade below par? The trade by op was a poor choice and he won't get fairly compensated for the risk he is taking. Simple as that.
I picked up some Charles Schwab notes
- Thread starter TimtheEnchanter
- Start date
New issues rarely priced below par, or the bankers will lose the job. Once traded, it trades with the credit default swap yield curve, which rarely changes for larger companies.
This is not an unfair trade at the market price, price is price, certainly when SCHW is not in a distressed situation. Even if OP went with UBS 1 year note for extra 8bps, it is a penny rounding error on a retail account.
I got it via Fidelity. Only a very small amount, rated A- (moody's A2) the peeps who think Schwab is "distressed" is not in their right mind! Fidelity would not sell me Treasures under a 100 lot.- Is it callable? Did I miss something or did you omit the most important aspect? Not that it matters with the upcoming rate hike.
- With comparable T bills paying 5½%, and a rate hike expected in two weeks at the FOMC meeting, you are not being compensated for the additional risk of a corp bond.
- Did you cross the spread?
- What did you pay in commissions, and fees?
- What broker?
- What is this bond rated?
- You left out a lot of important stuff!
- I’m calling this a bad buy. Nothing personal, of course. I’m here to help <3
- Generally you should get at least 1% more than a Treasury issue with comparable maturity for assuming the additional risk of a corporate bond.
- In this market, at a minimum I’d bid a 6½% yield, if not 6¾ or even 7%, to add that to my portfolio.
Look here: the US Treasury just auctioned a 52-week bill on 7/13 at 5.428% yield.
https://www.treasurydirect.gov/auctions/announcements-data-results/
If you were a friend and we were at a bar having a drink I’d smack you and curse you out for this move.
Sell that s#!t asap—get it off your books before the Fed raises rates and it’s resale value plunges.
—Keith
Non-professional - Not licensed - Not qualified to give advice - Opinion only
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That is total bollocks. Whether a bond trades at or below par has nothing whatsoever to do with bankers, but the prevailing forward curve, coupon rate and remaining time to maturity. You have no idea what you are talking about. Tons of bonds currently trade below par.
you are clueless, even Apple 10 year note is below par right now when the coupon is just 2%.
I never worked on a bond desk but par is just a made up construct. Companies will choose their coupon payment structure based on a variety of things (like accounting treatment and cash flow assumptions). Investors will favor certain coupon payment structures based on a variety of things (like cashflow preference, tax rates, etc). Where the two meet becomes the initial price. That doesn’t have to be par.
Ie, if a company wants to issue a zero coupon bond, that’s definitely not trading at par.
any of those special features will have to comport with the market at the time of issuance, including credit ratings. higher the credit rating, more covenants cannot breach. cost of borrowing is the cost of borrowing, regardless how you want to pay, principal plus interest.
correct, but par means the principal value being paid back, typically $100 or $1000 or $1MM. The price of a new issue can be anywhere. It will only be at par if the pricing parameters work out that way.
I'm taking issue with your comment that new issues are priced at par. They rarely are.
below par is a term describing a bond whose market value is below its face value or principal value, usually 100 but not always. at the time of issuance, market value is the face value or principal value. money made or lost when interest rate changes.
one simply can’t find a a- rated non bank financial with 1 year left with 20% returns, if that’s what considers as compensation to credit risk, the market doesn’t agree with that price.