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I owned bond ETFs for a few years. It got old, reading the most recent reason the ETF was significantly down just when I needed it the most.

Bond ETFs are not the same as bonds. Not even close. Do not have the same purpose (I don't know what the purpose is for bond ETFs, other than to make owners feel secure when they are not).

I've since held corporate bonds. Nothing against them. We sold all of our bonds in 2020 when the market was down and bonds were way up. It was the perfect swing trade.

If you look at XBB for March 1, 2020 (the start of the COVID correction), you will see XBB crashed at the same time as the equity market. If it's going to do that, I might as well own a REIT that pays me 6~8% every month and also appreciates. If we had owned XBB, instead of corporate bonds, we would not have had the massive COVID booster shot.
 

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Actually BBB rated (at least anything rated under A) corporate bonds in particular were the reason for the March 2020 crash in bond ETFs and for some period in March 2020, one could not buy or sell a corporate bond. Nothing showed on bond inventory at at least some discount brokerages for many days during that period.
I swear, people on this site would argue the sky is green. You are a credible person and I'm sure there is something to your narrative but it simply does not reflect my reality.

My junk bonds and debentures sold like Russian/Ukrainian translation dictionaries in Kyiv during the COVID correction.

My NWH.DB.G sold for $108.50 on March 2, 2020. That is an 8.5% premium, plus I got the prorated interest. I seem to recall NWH.DB.G was tagged with a 3B rating, as were the other debentures and bonds I held, at the time. That's why I correctly called them junk.

That morning, I also sold another series of debentures and some bonds.

While I'm here, let's have a look at XBB vs S&P 500 during the COVID correction.

Rectangle Slope Plot Line Font
 

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BTW, the money was immediately pumped into NWH-UN common shares which were forward yielding around 12% at $6.71.

I understand the common shares will stop distributing long before the debentures default but, even if they stopped distributing for a year, I knew I would be well positioned.

It was a strange time for us. I was still working, I wanted the bonds/debentures heading into retirement but I could not resist converting the debentures into common stock at a rate far, far better than the debenture conversion rate and take a big goose to our dividend income while we were at it. From memory, the debenture conversion price was something like 17 bucks so we tripled our money over a potential debenture conversion.

I am not an active trader, to say the least. I pride myself on doing nothing, almost all of the time. Being patient does pay off sometimes and this was one of those times. If I had held XBB, we would have had noticeably less retirement income right now.

I'm not providing advice to anyone. Enjoy your XBB. I just don't see the purpose of holding an ETF that floats with the market and pays less than holding bonds themselves. It literally takes away 100% of their value, from my perspective.
 

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Not sure what your points are in your last 2 posts? NWH.DB.G is not a bond...
I stopped reading after this. No need.

Unsecured bonds and debentures are essentially equivalent, with the only exception being secured bonds pay before unsecured bonds which pay before debentures in a corporate liquidation.
 

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Congratulations on the exquisitely timed trade.
Thank you. It was luck. I have absolutely no ability to trade and make money. My gut is a moron.

I was prepared to hold those debentures to maturity which, as I recall, was 2024. I also sold some bonds that matured about that time and another series of debentures that matured at the end of 2022. The point of bonds and debentures (again, practically the same thing but with a slightly different risk profile) is that I would have gotten back every penny of capital plus interest, if I had held to maturity.

Someone gave me almost the entire coupon value of the 2022 debentures 2.5 years early. Weird.


Your junk bonds and debentures sold richly just before the Covid correction, not during.

Check out a chart for XHB. The week of March 2, 2020, was the absolute peak. The following Monday (March 9, 2020) is when markets began to crash. By March 20, XHB was down 25% and -- as @AltaRed said -- most of the bond market was no-bid.
I suppose the markets starting to crash on March 9 is a point of view but Yahoo and I were there at the time and we see it a bit differently.

The light blue line that begins to plummet on February 21 is the S&P 500. The lower, darker, line is XBB.

Slope Plot Rectangle Parallel Font
 

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To me this is like saying a rainforest is like a desert, one is just wetter than the other. NWH.DB.G is a convertible subordinated instrument.
The bonds I sold on March 2 were convertible.

I understand most bonds do not convert and many debentures do convert but that is a function of the contract on the note, not the instrument itself. Debentures do not have to convert, by definition, and some do not. The only fundamental difference between bonds and debentures is the liability payout sequence on liquidation.

Debentures and bonds serve the same function in a portfolio whereas bond ETFs do not. Bond ETFs can technically lose capital forever, although I have never seen it happen, due to market maker overhead. A bond or debenture will return the full capital on maturity as long as the company remains solvent.

I believe what is going on here is a few people are trying really, really hard to "be right". I'm here to exchange ideas and have little patience for alpha crap, particularly when it is an attempted beat-down that is based on incorrect information. I've written facts. Readers can judge for themselves who is right and who is wrong. Anyone who wishes to exchange ideas with me (the reason I am here) is welcome and invited to do so. This includes if you feel I am wrong about something. No problem. Those who wish to "correct" me (perhaps based on some self view of alpha leadership) are advised to make some effort to be factually correct.

Consider this:

Joe Investor with $1M nest egg buys $20K worth of bonds yielding 4% which mature in 7 years.

Jane Investor with $1M nest egg buys $20K worth of debentures yielding 5% which mature in 7 years.

Each instrument is a promissory note to return capital plus coupons that mature on interest payment dates.

Assuming the company remains solvent, these two positions perform the same function in a portfolio. If the debentures convert, there is potential opportunity for increased yield from the debentures but the conversion ratio is rarely achieved in a stable company, like a REIT, so this is unlikely to factor. Also, conversion is not a feature unique to debentures, as it is sometimes seen in bonds.

Debentures clearly fall in the bond class. Asking specific questions about debentures at your broker will likely yield a bunch of disinformation at your broker until you are eventually escalated to a bond trader who will answer without effort. The same goes for bonds but, for some reason, many people in the financial industry don't seem to understand debentures.


Good people of Cmf. Let's talk bond funds.

Are you adding new money at the minute? I'm talking XBB, VAB etc. My theory is stick with it. Keep the asset allocation as per my original plan.

I'm interested in the views out there.
Bond talk was requested. Mr. l1quidfinance is interested in views. I shared mine.
 

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BBB are investment grade. Lowest level of IG is BBB-
High yield (junk) starts at BB+ and goes lower (B, CCC, CC, C etc)
Fair enough. I've always considered BBB to be junk, perhaps a factor of a business partner from the 1980s who seeded most of my core investing knowledge. Although, I know a couple of others who hold the same view.

Kind regards.
 

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I will mention, since it is relevant to the original discussion, I held some of the NWH 6.5% yield debentures. Bonds were not top of mind for us, at the time, but it was a really strong offering so I expressed interest.

That series was bought back by NWH so we didn't hold it to maturity. This is a liability of this investment class. Any of the contracts I've read in the last decade have included a clause which gives the right for the company to buy back the notes.

Shortly after that purchase, I decided to build a 5 rung bond ladder. That ladder was never completed. Two years later, we had three rungs (another IPO and one series purchased on the secondary market) before NWH bought back our first tranche, leaving us with two. One other bond tranche was purchased on the secondary market after this.

Holding bonds is messy, compared to buying an ETF. If you need an organized ladder with perfectly structured maturity and are careful who you loan money to, as I am, bonds are extremely difficult. There was a period of 18 months in which no bonds of interest were offered. We never did have a perfect ladder with something maturing every year but it was good enough for us and there was always the option of selling into the secondary market.

I came to realize I would not consider owning a bond from a company which I would not consider owning common stock. If management is good and the business is stable, I would own either instrument so the bond/debenture would have to pay more than the common stock yield to make it interesting. In the case of NWH, it did not but I bought anyway. We would have been served as well or better with common shares.

At this point, I doubt I will ever buy bonds again. We use a pair of GICs as insurance against sequence of return risk. The reason I did not choose to use a bond ETF is cited above.
 
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