Right, don't flame as I've never really bothered to read up on bonds. I was just browsing the yahoo bond screen and found this:
http://reports.finance.yahoo.com/z2?ce=5815448143…
Now, if my calculations are correct, I could make 30% by next year.....I don't really see AIG going down within a year so is there a reason that every tom, dick and harry isn't lapping this shit up?
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Your link doesn't work - every Tom, Dick and Harry isn't lapping this shit up because depending on what type of bond it is you could be left with nothing. Getting wiped out on one holding is going to crush any bond portfolio.
The YTM is the yield that equates the present value of expected future CFs to the current market price of the security. This is assuming the said CFs are actually distributed; hence, the 28% return is no guarantee. Therefore, the YTM is the absolute best case scenario (all expected future CFs are realized). However, as you hopefully are aware AIG is in a very tough spot and there is no guarantee the gov. will continue to support AIGs creditors. So, there is also a lot of risk here. That being said, there is still a pretty significant return too.
I found a couple similar ones like these as well, and I think its the uncertainty over the next year. It would be like an all or nothing gamble cuz like said there is no guarantee about AIG.
...sometimes bonds are cheap for a reason. If you dont even understand how to figure out the yield on the bond then its safe to say you arent exactly "the smartest guy at the table" in this proverbial poker game...
Like I said, I've never looked into bonds and have no intentions of putting my money anywhere near them right now. I was just curious and stumbled across this.
I actually bought Citi unsecured debt in June 2008 yielding (annual) about 6%, with maturity in May 2009. This was right before Citi fell into the toilet. By the fall, the YTM on that security was about 40%. Given that I had purchased about $20,000 of these notes with my own personal money, I was out something like $15,000 in a matter of months, and I was just some punk 23-year-old kid--I couldn't afford to lose $15,000! So I didn't sell. And that's the only reason I didn't sell--I had less to lose than to gain. By some miracle, the security recovered and I collected a few hundred bucks profit in May. I DEFINITELY bought more than I had bargained for!
I was under the impression that bonds worked like this:
1) Buy bond 2) Collect coupon 3) Hold until maturity 4) Citi gives you value
What step am I missing here?
The step where the bond funds with billions in AUM know more than you and there's a reason their bonds are trading so low.
You do know that borrowers can (and do) default on their bonds, and they can default without going bankrupt, right?
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