I had my eye on the 5 year BAM issue with the attractive 9% yield. It was offered at the end of May but realized I needed a minimum $500,000 investment. Do you see anything in the convertibles that are a good buy at this time? Thanks.I stay with fairly short maturities, the recent 5 year issue by BAM at 9% is an example. There are also some good convertible debentures trading on TSX with good yields; they are mostly not investment grade, but are easier to trade.
The credit risk for many convertible debentures is considerable. Most are issued by income trusts, which are inherently strapped for capital. So many debentures were down dramatically in the fall when it was impossible to raise capital. If the company defaults, the debenture could be worthless. If the company is still listed when the debenture matures, the debenture may be paid out in trust units rather than cash, so it is much safer than holding the income trust units themselves. The stability of the company is key.Thank you Janbjarne for the recommendation on debentures. I am not familiar wih this investment vehicle. hat are the risks on these other than the credit risk? tks
Thanks for the info janbjarne...Incidentally, the BAM bond issue was available in minimum $5000 investment. I asked for $10,000 and was lucky to get $6000. It now trades at a significant premium.
I knew there had to be a catch for such a nice yield. The 9% yield is really meaningless if the issue is designed to be called at anytime. Given the current environment of falling spreads, this will surely be called in the near-term for refinancing at a more attractive yield for the issuer. For anyone who may be working with a fixed income plan or a bond ladder that included this issue, a call would be a major inconvenience requiring some re- planning or rethinking of their strategy .tojo,
Actually, call provisions like this on corporate bonds are fairly common. When interest rates fall, the risk of the issuer calling the bonds increases because they may be able to refinance their borrowing at a lower yield. The investor is typically compensated for this risk with a higher yield to maturity. If you invest in bonds with call provisions, you should read the prospectus carefully (the relevant documents for existing issues may be found on SEDAR). Some issues give the investor some prepayment risk protection by preventing the issuer from calling the bonds for a fixed period of time. Others, like this BAM issue, give the investor no prepayment risk protection at all.