One Type Of Bond That I Would Buy

By: ispeculatornew
Date posted: 07.10.2012 (5:00 am) | Write a Comment  (4 Comments)

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I’ve been very vocal about my opinion that buying individual bonds is something that most of us should stay far away from. Why? The number one reason is that bonds are not traded electronically. The impact is that it’s not very transparent. Like other such products, it’s usually the dealers that make the most profits. They have wider spreads and can give less than optimal fills, especially for smaller size trades. If you’ve traded individual bonds before, I have one question for you.

-How good was the fill that you got?

What do I mean? If you buy a stock you can instantly verify that the price you received was the price that was being traded on the exchange.When you buy a bond, you can easily end up losing 1% or more from the moment the trade is done. Chances are that it will happen on every single bond.

The Solution

The main solution that I always discuss is buying a bond ETF. Why? There are many reasons but I would say that the main ones are that such funds trade for very big size, are able to price and shop around before making trades ensuring good trading. Even more important is the fact that these funds market themselves based on their returns and how well they can do over longer periods of time. The funds have every possible incentive to get great pricing. They are paid in terms of the assets that they manage and the only way they will gather big assets is by performing very well.

The other big reason of course is that because of the high level of competition between ETF issuers, they are able to offer very low fees, much lower than other funds such as mutual funds have been able to offer.

Done Entirely With Buying Individual Bonds Then?

You might think that I’ll never buy another bond and I did also think so. Then, I heard about a type of bond being issued by Wimbledon which caught my interest. Wimbledon is the most famous tennis tournament in the world, played every year in London, UK. This year, the Olympics are actually being played there. Part of its mystique is its history but also the fact that it is the only grand slam played on grass. The tournament is extremely popular making it very difficult to buy tickets.

Innovative Bond Structure

What did Wimbledon decide to do? It issued bonds that are almost entirely paid back through tennis tickets. Good investment? I guess it depends who you ask but as a big tennis fan, I’d certainly be very tempted!! I don’t seem to be the only though as the bonds currently pay back about $3100 worth of money in 4 years but cost over $100,000 in the markets… so yes, that both means that you are getting the large majority of your money in tennis tickets but also that if you were to calculate the return, it would likely come down to a very negative yield.

From the tournament’s perspective, it’s a great outside the box idea that gives them access to cheap financing… win-win for everyone right?

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4 Comments

  1. Comment by eveline — July 10, 2012 @ 6:19 am

    One Type Of Bond That I Would Buy

    BUT YOU not explain THE cusip or isin from these bond?

  2. Comment by IS — July 10, 2012 @ 8:05 pm

    @eveline – I’m not sure if it actually has a cusip or if it’s more of a simple legal agreement, if anyone else knows, I’d love to hear

  3. Comment by john — July 14, 2012 @ 10:00 am

    A good alternative to bond is prefered stocks that give fix interest payment

  4. Comment by IS — July 14, 2012 @ 11:56 am

    @John – Sure, but I think the pref stock market is a bit overpriced these days, not nearly as liquid which makes trading them expensive.

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