Bonds

[GTM 3442]

Eastpack have some 5 year notes with a starting rate of 8.9%, but regular rate resets to a floor of 8.5%. Wholesale and retail welcome

Caveat Emptor - not interested.

https://www.syndex.exchange/investme...eastpack-notes

[Aaron]

Do you know what are the main ratios or z scores to check for company viability. Interest times covered, Debt to Equity etc. should be a lot less work for bond buyers compared to equity buyers I would have thought.

P.s. couple of additional thoughts do the NZX companies or their bonds get rated by a credit rating agency and if so how do you check this?

Is there an ASXDX list like the NZXDX one.

[Aaron]

Another thought at what point are you in the business of buying and selling bonds?

Most of the yield buying on the secondary market is purchasing the bonds for less than $1. When matured the full $1 is paid out and the difference is treated as income using the base price adjustment which deems the extra money received "interest".

The IRD say that when this deemed "interest" is a loss it is not deductible as it does not relate to the income earning process. Sounds like a lot of bollocks to me but interested to know others views.

To satisfy the general permission there must be a sufficient relationship between the repayment of the interest and the earning of assessable income. The Commissioner considers the relationship between the repayment and the interest income earned under the term deposit is insufficient to satisfy s DA 1(1)(a). As the amount of the repaid interest is not deductible at the time of repayment, it falls to be dealt with through the BPA on maturity of the deposit. However, the Commissioner considers that, where the expenditure has been incurred in carrying on a business, a deduction may be available under s DA 1(1)(b). Whether the repayment of interest satisfies the nexus test for a business will depend on the facts of each case.

I recall going over this back in the GFC when the finance companies were collapsing.

[Bjauck]

Another thought at what point are you in the business of buying and selling bonds?

Most of the yield buying on the secondary market is purchasing the bonds for less than $1. When matured the full $1 is paid out and the difference is treated as income using the base price adjustment which deems the extra money received "interest".

The IRD say that when this deemed "interest" is a loss it is not deductible as it does not relate to the income earning process. Sounds like a lot of bollocks to me but interested to know others views.

To satisfy the general permission there must be a sufficient relationship between the repayment of the interest and the earning of assessable income. The Commissioner considers the relationship between the repayment and the interest income earned under the term deposit is insufficient to satisfy s DA 1(1)(a). As the amount of the repaid interest is not deductible at the time of repayment, it falls to be dealt with through the BPA on maturity of the deposit. However, the Commissioner considers that, where the expenditure has been incurred in carrying on a business, a deduction may be available under s DA 1(1)(b). Whether the repayment of interest satisfies the nexus test for a business will depend on the facts of each case.

I recall going over this back in the GFC when the finance companies were collapsing.

Taxed on all gains, not allowed losses if you don’t your capital back. Another reason why Kiwi boomers put their nest egg money into earning untaxed gains from housing!

[Aaron]

https://www.interest.co.nz/bonds/122...interest-rates
We think short end rates are too high, and too expensive. We think wholesale rates should fall back to where they were.

Not sure why bank economists dictate expected yields for investors.

What is inflation at the moment 6.7%?? That makes the current yields pretty shi*ty IMO.

Also not related to the article, but here is a trap for new beginners in the secondary bond market. I was wondering why the yields were so high on bonds just about to mature compared to the longer dated bonds.

I have since realised that the ASB commission on purchase of .07% is the same no matter the duration of the bond so don't forget to include the fee when working out your yield as it is much more significant over three months than say 3 years.

Another reason not to follow anything I say or do.

[Aaron]

Good news I will get repaid my IFT210 these were at 5.25% I bought above 7% and hope that I will get roughly 7% on maturity.

https://www.nzx.com/announcements/417539

I wonder what the interest rate on the new lot will be. A slow process raising rates but a bit more financial pain being added to companies.

I guess in a world of unlimited capital I should not worry about debt being rolled over.

[Aaron]

Good news cash is no longer trash according to Ray Dalio.

https://www.linkedin.com/pulse/think...ash-ray-dalio/