Thursday, December 27, 2012

Newbie's bond portfolio - Trade #3

I bought USD100k notional of Macquarie Group 6% USD 2020 Senior Unsecured Bond as my third trade.

At a client price of 108.75, it works out to:
YTM = 4.53%

I will be using my remaining USD95k cash injected to fund the purchase, with the balance made up of USD loans.

Assuming this bond is fully supported by USD loans up till the approved lending ratio, the projected Net Leveraged YTM = 21.64%

Rationale for purchase:
With already 2 long dated bonds/perpetuals in my portfolio, I decided to add a fixed tenor investment grade bond with relatively high coupon into my portfolio. I would like to have bought more of this security but the price is rather high at this point in time, so I decided to enter USD100k notional size for now, with a view to buy more on price declines.
This USD bond pays 6% fixed throughout its tenor. The coupon is high but given I am buying this bond at a 8.75% premium, I would not consider this as a fantastic purchase.
Macquarie is one of the largest investment banks in Australia. Given its importance to the Australian economy and the fact that the Australian Government is rich with none of its Financial Institutions in trouble even during the Financial Crisis, I am confident that Macquarie will be extended a helping hand by the government if it should need it.
Macquarie has a very large Equity base as well as a large number of subordinated bonds. As my purchase is a Senior Bond, it is likely for a high Recovery Rate should Macquarie be liquidated (although that is highly unlikely in my opinion).

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