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Investing in short term individual junk corporate bonds

DavidV
edited September 2018 in Fund Discussions
I am thinking about buying individual junk corporate bonds and hold them till maturity for 1-3 year. That way the risk of rising interest rate will be eliminated comparing with bond ETF and MF in the same category.
I see many options in TD offering. Just one example: Safeway Non Callable bond, Maturity 8/15/2020, Yield to Maturity 4.95%, Price 98.2, Rating B3/B.
I believe similar bonds for such short period of time are safe and offer better return than CD or bond MF.
Does anybody consider such investment?

Comments

  • johnNjohnN
    edited September 2018
    Hi sir I do have Kroger Corp bond... Albertson Safeway Also very safe imho.. So many Albertson marketbstores in West coast almost monopoly... Not as as safe as put cash in bank but close... Set up Google.com/alerts 'Safeway bankrupt' in ur junk Gmail and get hrs news if any issues w Safeway having defaults risks bankruptcy.

    I did sell genworth bank Corp yesterday recently due to defaults talk from Gmail alerts
    At 88cents...not bad





    https://www.investopedia.com/terms/b/b1-b.asp
  • johnNjohnN
    edited September 2018
    Also buy more than one bond hy corps if possible to spread out risks +short term bond Corp ETFs if you have enough capitals... This is what I did for my mom acct fidelity. she is retired... Macy's Corp bond best buys yum brand att and Vanguard bind etf and pimco are some of the holdings
  • DavidV
    Thanks John. Do not you think that ETF or MF has the same market and interest rate risks as all other junk bond funds? Holding individual bond till maturity eliminates those risks.
  • msf
    DavidV said:

    Thanks John. Do not you think that ETF or MF has the same market and interest rate risks as all other junk bond funds? Holding individual bond till maturity eliminates those risks.

    BSJJ, BSJK, BSJL. 1-3 year maturity, as you originally said you were interested in.

  • DavidV
    @msf These are BulletShares ETF. They have a pool of bonds that mature in the same year. The problem I see with these ETF is that during last year before fund termination when bonds mature the fund wiil accumulate the cash and will pay much smaller coupons. I still not sure how to estimate total return of these funds held till the termination.
  • johnNjohnN
    edited September 2018
    Hi sir david
    Think lots risks due to raised interest rate whether you have indiv bonds or etf.. Yield maybe slightly lower next 3-6months.. You can control and sell anyrrime you want if hold indi private bond whereas holding and etf you have to pay fees and no control of management buy and sell weekly basis where as if u hold individual private single bonds you don't really care what it does during weekly basis as long as its not bankrupt and pay you full prices when called or more PREFFERED WHEN MATURE at 100cents +div... Usually private bonds they tell you best rate returns when first purchase right vs worst rate returns if starting to call early

    The short 3 yrs etf usually the managers buy more bonds for next 3 yrs if their bonds mature.. You have to pay annual fees where as individuals Corp etf you only have to pay commissions fee usually 10bucks per 5k of bonds

    https://www.google.com/search?tbm=bks&q=Bond+invest

    https://www.cnbc.com/video/2018/09/26/how-to-invest-after-the-fed-raised-rates-federal-reserve-interest-rates-rate-hike-market-stocks-treasury-bond.html
  • msf
    You can sell the BulletShare as it enters its last year (the portfolios of the HY variety are designed to mature throughout the final year). That way you don't have to worry about it piling up cash until it liquidates at the end of the year.

    If you're concerned about the impact of rates on the price you'll get, remember that what you'll be selling is a portfolio of bonds that mature in the current year. In other words, ultrashort bonds, with an average maturity of about six months. An interest rate move isn't going to have much impact on these bonds; you'll be getting close to par if you sell.

    Alternatively, you can simply reallocate your portfolio. As the ETF moves to cash, you reduce your explicit cash holdings so that the amount of cash you hold remains constant. The cash that you're taking out of your cash allocation could be used to purchase more BulletShares.

    Either way, you're getting a safer, more diversified portfolio than you'd get with individual bonds. "Generally speaking, investing in a diversified portfolio of bonds requires at least $100,000–$200,000, depending on the type of bonds chosen and their credit risks."

    https://www.fidelity.com/learning-center/investment-products/mutual-funds/bond-vs-bond-funds

    That jibes with what I've read elsewhere: min $50K for muni portfolio, $100K for investment grade, $200K for junk.
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