Is buying debt to hold till maturity pretty safe?

[POSSUM THE CAT]

Kiwi2 read the bluestar thread.

[BIRMANBOY]

You can buy fixed interest securities, bonds etc on the open market see below link https://www.directbroking.co.nz/Dire...ratesheet.aspx

Best to do some research yourself...if you use DB you can call them and they are quite helpful with explaining. The major thing is be aware that stated rate of interest is going to be constant (unless its a perpetual) but ACTUAL yield is determined by how much of a premium (or discount) that you have to pay to buy on open market. Alternatively IFT is getting ready to place a new bond

Issuer Details
Issuer Name:	Infratil Limited
Key Dates
Opening Date:	23/04/2013
Closing Date:	27/06/2013
Issue
Coupon Rate:	6.85% p.a.
Minimum Investment:	$5,000 and in multiples of $1,000 thereafter
Amount Sought:	$25m with up to $75m of oversubscriptions.
Details
Infratil Limited ("Infratil") has registered a Simplified Disclosure Prospectus for an offer of Infrastructure Bonds. The new Infrastructure Bonds have a maturity date of 15 June 2022 and will pay a fixed rate of interest at 6.85%p.a. Interest will be paid quarterly. Infratil Infrastructure Bonds are unsecured, unsubordinated debt securities of Infratil. Unlike each series of Infrastructure Bonds issued prior to November 2011, the Infrastructure Bonds offered under this prospectus are not convertible into shares in Infratil in any circumstances. Infratil is a holding company with investments in the infrastructure companies that are described in the Simplified Disclosure Prospectus. Prospective investors should refer to the Simplified Disclosure Prospectus to fully understand the status of the Infrastructure Bonds and the terms and conditions of the offer. For more information or to request a copy of the Simplified Disclosure Prospectus, when made available, please contact the Direct Broking Fixed Interest Team on FREEPHONE 0800 800 372 or you can request a copy of the Simplified Disclosure Prospectus by providing your details below. Disclosures and Statements ANZ New Zealand Securities Limited will be paid commission of up to 1.25% of the application amount on all applications that are accepted by the registry bearing the Direct Broking "stamp". No fees are payable by the applicant on successful applications. ANZ Bank New Zealand Limited is a joint manager of the issue.

Hi No Solution,
I also have a large call account sitting getting low interst. (4%).
Been thinking about bonds.

Have no plans as such for the money except the interest return to live on, so can hold to maturity.

Happy to use a broker...but would prefer to do own thing.

How do you go about buying a bond say issed by a bank eg ANZ do you contact the bank ?

Can you give me an update of what you ended up doing ? How has it worked out.

Thanks.

[BIRMANBOY]

Not particularly helpful..hes asked what he could do not what he shouldnt. The road is littered with failed finance companies, dreary mining ventures gone wrong, companies that implode etc. etc. Bonds , debt securities also have had some bad apples. All financial ventures are DYOR and hopefully a recognition that "if it sounds too good to be true...it probably is"

Kiwi2 read the bluestar thread.

[BIRMANBOY]

See above posts.

I would also be interested to know how you got along, havent really got into the bond market, but it has some healthy returns it seems and am just starting to research them now!

[Dej]

See above posts.

Thank you for your insight BIRDMANBOY, very helpfull

[BIRMANBOY]

No problem...ps Birman are cats BIRDs and cats dont get along according to Gareth. Another thing to keep in mind is for example with the IFT new bond coming out.... When you buy at outset, ie not on open market but when its issued, there is no brokerage charges because the fees are paid by issuing entity (here IFT) to the facilitator either DB or ASB or whomever. SO if you buy a 10,000 bond it costs you 10,000 and will pay the quoted interst rate (6.85%) fro the duration of the term..(I think 2022)? Problem of course is this...at the moment 6.85% is great but what happens in 3,4,5 or 8 years. Lets say the interest rates go up to 10% hypothetically. Now you are receiving 6.85% when you could be getting 10% as a TD....whoops. So this is where the open market comes in. You can sell your bonds at any time but key is at what price. If you tried to sell your 6.85% bonds when better options are avail elsewhere then no-one wants your bonds at face so would be offering to buy at a discount. So you might be forced to sell 10000 bonds for 7000 or whatever ..you get the idea. I have 11 or so assorted bonds and all are "in the money" ie they are paying me well above current interest rates and also if I sold them I could sell for more than I paid for the. Good timing. Trick is to keep an eye on interest rates and also maturity terms etc. Longer the term..higher the yield but also greater chance of interest rates turning? Do some study before you go for it.

Thank you for your insight BIRDMANBOY, very helpfull

[toucan22]

I invested in a range of bonds a couple of years ago and have been receiving a steady, above bank interest, income stream from them since. Like any investment you need to do the research on the issuing company/bank, read the prospectus, etc.
Things to consider are whether they are a fixed term or perpetual and if perpetual how and when the interest rate is changed and when or if they might be called(cashed up).
Often you can buy bonds at a discount to the issue price based on the market perception of the bond and or the dividend being paid. You can also pay a premium based on the same reasons. So you need to look at the yield to see what you actually get.
Eg:
Credit Agricole (CASHA) perpetual bonds callable from 19/12/2017 are paying 5.04% fixed till 19/12/2017
Currently you can buy 10 000 bonds for $6262.
The gross yield is 10 000 x 5.04% = $504 / $6262 = .08 x 100= 8%
Things to consider are that someone originally paid $10 000 for the 10 000 bonds and why they are selling at a discount as well as the likelihood of the bonds being cashed up (taxable capital gain to you of $3738) or if not cashed up what the interest rate might be reset at.
Only using this as an example - not actually suggesting they are a good buy - although they might be.


I bought my bonds thru Chris Lee and partners and found them very friendly and helpful.
www.chrislee.co.nz
Check out their "current investments" page for a list of bonds available and PDF's of the investment prospectuses
Also I find their Market News and Taking Stock newsletters make good reading.

[kiwi2]

Thank you very much Birmanboy for your help.

So am I correct in reading that Infratil Limited is opening a bond today and I can invest up to the 27th June 2013 via the ANZ ?

Does this mean as I am paying no premium for the bond I am going to be getting 6.85% on any money I invest ?

Sound good....but hopefully not too good as not to be true as the old saying goes.

Are you taking up the offer ?

Thanks again.

[POSSUM THE CAT]

Kiwi2 have a look at what debts rank above it. IE what debts have to be paid first before you get your money back if the company has problems

[BIRMANBOY]

Sure..first thing is express interest with them by requesting a prospectus. If you use DB you can sign in and tick box to do that. If you dont use DB use your normal people..if you dont have any connection with anyone? , I find DB (direct Broking) is good. DB is associated (owned ) by ANZ but I dont know if you can walk into your local ANZ bank and do it if that is what you are asking. So you will pay your whatever amount andd will receive your 6.85 in quarterly payments. UNLESS something goes wrong with underlying issuer IFT. So there is an element of risk...how much risk is acceptable to you is the 1000 dollar question. IFT have about 7 or 8 bonds on the go. I have had several go to maturity with no problem. Usually they will either cash you out or offer to roill you over into a new issue (if one is available). There seems to be a good aftermarket available for selling and buying on IFT so your other option is wait until they have been bought to market and are listed and then you can buy or sell on market. Remember that you will be charged brokerage fees here though. My gut feeling is these will be popular and after they list you will pay a premium to buy. Yes I will be buying because I like to spread my exposure and still get good yields. Remember what I said previously about long term though...maturing 2022 so what will interest rate look like in future. The underlying thing to keep in mind is who and what and how safe/reliable/secure is issuer. This is the most important thing to come to grips with.

Thank you very much Birmanboy for your help.

So am I correct in reading that Infratil Limited is opening a bond today and I can invest up to the 27th June 2013 via the ANZ ?

Does this mean as I am paying no premium for the bond I am going to be getting 6.85% on any money I invest ?

Sound good....but hopefully not too good as not to be true as the old saying goes.

Are you taking up the offer ?

Thanks again.