The bond market has completely changed in the last few weeks. A bond buyer can now find hundreds of blue-chip fixed income products with years. With Donald Trump's election, the bond market took a dive (bond prices dropped and yields rose).
First though, how does a bond work? Bonds are sold in $1,000 increments and pay a coupon twice a year. Depending on the size of the coupon, the bond will rise or fall in price so the total return matches prevailing interest rates. If you hold a bond until maturity, you will receive your principal and income and will know the payments to the penny.
The first bond is CBS (CBS, Financial) with a 3.797% yield to maturity. The maturity date is June 15, 2022 and the cusip is 9255pam4. The bond is BBB- rated by S&P. Anything above BBB is investment-grade. An investor can find nicer yields by looking at BB and BBB if they do some research.
The next bond is Arrow Electronics (ARW, Financial). Arrow is an electronics wholesaler. The bonds yield 3.559% and mature March 1, 2021. The cusip is 04273wab7. The bonds are BBB- rated by S&P. I first heard of Arrow by reading FPA Fund's literature.
As a value investor, sometimes you will see the bonds of a company and you know the stock by reading about it on GuruFocus. We own Fairfax (FRFHF, Financial) and Markel (MKL, Financial) bonds but not the stocks. These two insurance companies are managed by some of the best investment managers out there--Prem Watsa (Trades, Portfolio) and Tom Gayner (Trades, Portfolio). Also as a value investor, a bond often suffers if the stock drops. This can give a bond buyer an opportunity for a little extra yield.
The next bond is Flower Foods (FLO, Financial). The bonds yield 3.291% and mature April 1, 2022. Let's hope investors do not get an April Fool's joke when that next coupon is due. The cusip is 343498aa9 and the bonds are BBB rated by S&P.
The last series are Kraft Heinz (KHC, Financial) bonds that yield 3.291%. The maturity is July 15, 2022 and the cusip is 343498aa9. The bonds are BBB rated by the S&P. I am pretty sure Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) and 3G Capital would lend the company their balance sheets should the bond holders ever need to get made whole.
When looking at ratings, do your own research. As we know, the rating agencies have conflicts of interest and are often wrong. They will downgrade a bond after it has already fallen 15%. I would guess the rating agencies are on the money about 70% of the time and off maybe 30%. In this search, I excluded many banks and energy companies. Banks are difficult to value and energy companies fluctuate with the price of oil and gas.
You will not get rich investing in these four bonds. However, comparable Treasuries are yielding about 2.2%. As you can see, with a little research, you can pick up some return in shorter-term corporates.
Disclosure: We own all four bonds.
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