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Scaled back to a third of our Genesis app.
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Genesis doing another issue $75m with rights to $50m oversubscriptions. 6 years, minimum interest rate 4.00%, standard brokerage charges apply to any bonds you are allocated, expressions of interest deadline is first thing tomorrow. Whenever I have seen this I have always found it objectionable that companies raising money from the public expect that those subscribing will pay the costs of the brokerage.
Also objectionable that for no valid reason brokerage on fixed interest securities is significantly higher than for equities.
Upshot of this is you are not really getting 4%, the real yield is closer to 3.9% after brokerage costs....or you can get about 8.5% gross yield plus future growth on the shares and pay a modest 0.2% brokerage to do so, which is what I did this morning instead.
Last edited by Beagle; 03-03-2022 at 02:41 PM.
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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After the 1.56% coupon for the Mercury Green Bonds the other year, I think there are a fair few who are seeing 4% as very attractive in the fixed interest space.
However, those Mercury Green Bonds are now crossing at 4%.
I expect a similar situation with the Genesis issue a couple of years down the track. I'd be looking at buying at about 6% (or about 90c in the dollar) for them in second half of 2024.
It's a funny old world. . .
Last edited by GTM 3442; 04-03-2022 at 04:48 PM.
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Yes, there's a lot of issues in recent years where people would be looking at a significant capital loss if they sold now. OCA issued 7 year bonds at 2.30% a while back, now trading at 4.25% and anyone selling now is tearing up 10% of their capital.
I think the final rate set on these was 4.17% but I agree with you that the prospect of some capital loss even at that rate is very real which is another reason I choose the shares which I see as having the real prospect of capital appreciation along with earning more than twice the yield.
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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Timing matters
Originally Posted by Beagle
Yes, there's a lot of issues in recent years where people would be looking at a significant capital loss if they sold now. OCA issued 7 year bonds at 2.30% a while back, now trading at 4.25% and anyone selling now is tearing up 10% of their capital.
I think the final rate set on these was 4.17% but I agree with you that the prospect of some capital loss even at that rate is very real which is another reason I choose the shares which I see as having the real prospect of capital appreciation along with earning more than twice the yield.
Yes, I see your point.
But in a rising interest rate environment, don't focus only on the potential downside of selling early, think also about the potential benefit of buying late.
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Originally Posted by GTM 3442
Yes, I see your point.
But in a rising interest rate environment, don't focus only on the potential downside of selling early, think also about the potential benefit of buying late.
Agreed 100%. My point though is always when considering a bond issue, first ask yourself in the underlying equity is a better bet.
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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If you had bought OCA shares instead of their bonds your capital would be down 23% on the Oct 20 bonds and 32% down on the Sep21 bonds ...collected a few divies in the process
Mind you capital value of these bonds are down as well ...the 2.3% bonds down 9% and the 3.3% ones down 5%
Lost heaps on shares .... lost a little on the bonds
But says any recent investment in Oceania has been bad, really bad - can't win either way ...shares or bonds have been duds .... reflects Oceania management
Maybe the depths of despair is the best to time to buy.
When investors are euphoric, they are incapable of recognising euphoria itself
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Originally Posted by Beagle
Genesis doing another issue $75m with rights to $50m oversubscriptions. 6 years, minimum interest rate 4.00%, standard brokerage charges apply to any bonds you are allocated, expressions of interest deadline is first thing tomorrow. Whenever I have seen this I have always found it objectionable that companies raising money from the public expect that those subscribing will pay the costs of the brokerage.
Also objectionable that for no valid reason brokerage on fixed interest securities is significantly higher than for equities.
Upshot of this is you are not really getting 4%, the real yield is closer to 3.9% after brokerage costs....or you can get about 8.5% gross yield plus future growth on the shares and pay a modest 0.2% brokerage to do so, which is what I did this morning instead.
Yes me too.
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Originally Posted by Beagle
Agreed 100%. My point though is always when considering a bond issue, first ask yourself in the underlying equity is a better bet.
I can see we're coming from somewhat different directions here Beagle.
I'm buying to fit an asset allocation model, and return on capital is only one of the criteria.
There's also the effect on the average credit rating of the bond portfolio, maturity date for laddering, strength of the underlying company, all those sorts of things.
Example OCA - sold out of the shares , looking to buy the bonds - but only at the right price, or Infratil's IFTHA - that annual reset really makes a difference over the long haul on the right entry price.
Last edited by GTM 3442; 07-03-2022 at 09:50 AM.
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I totally understand where you are coming from. Contrary to some of the talk (strangely on the OCA thread), about being all in on equities as "THE" only way to go in terms of maximizing long term returns I think there are times that having some bonds or short term deposits are a good strategy but as you quite rightly point out timing is very important.
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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