Annuities....The Next Nightmare

Discussion in 'Wall St. News' started by libertad, Sep 15, 2008.

  1. yayt

    yayt

    Don't zero coupon bonds have, zero coupons? As in, no interest?

    Also, since they have a par value of of 1,000, clearly they can't go up 20% per year.

    Also, you are benefiting, in my opinion, from the recent flight to quality that has driven yields down/prices up, not something that you can count on happening every year for a 13% gain.

    This is just based on my understanding of zero coupon bonds, am I missing anything?
     
    #31     Oct 4, 2008
  2. jimbob42

    jimbob42

    You are correct. Zero coupon issues pay it all out at maturity unless you sell before then.

    They really are duration plays in that they move with the direction of interest rates.

    For example, a 10 year Treasury has a duration of 10; an increase or decrease in interest rates of 1% will move the issue up or down 10%.
     
    #32     Oct 4, 2008
  3. piezoe

    piezoe

    Immediately after i posted above advising him to diversify, i realized that he said "zero coupon," so where is Vinny's interest "income" coming from? Is he selling bonds??? Or is he counting interest he hasn't yet collected?? What's going on here?
     
    #33     Oct 5, 2008
  4. 10 yr note's duration is around 6-7
    http://www.cbot.com/cbot/docs/76032.pdf
     
    #34     Oct 5, 2008
  5. yayt

    yayt

    it seems like he's not exactly sure about the technicalities of bonds, and zero coupon bonds specifically
     
    #35     Oct 5, 2008
  6. jimbob42

    jimbob42

    That's partially true if we are talking about a coupon bond as duration takes into consideration both coupon income and final maturity. In the case of a zero coupon there is no income so the duration by definition is the maturity.

    Here's a link with the formula.

    http://www.investopedia.com/university/advancedbond/advancedbond5.asp.

    Trying to pick up a much a possible about the trading business after spending most of my working career in the bond management business
    Thanks -- the site is great
     
    #36     Oct 6, 2008
  7. I just checked the closing price of the 2036 maturity zero coupon bonds that I bought. They are now up 21% in a little less than 5 months. These things are great!!

    I've already made around $200,000 for doing no work at all.
     
    #37     Oct 7, 2008
  8. Only Wall St. would name a bond 'Zero" Coupon.

    There's some others that deserve the name too, plus zero principal.
     
    #38     Oct 7, 2008
  9. These are US government bonds. Very safe investments. The reason I bought these is because long maturity zero coupon bonds are more volatile, which means big moves up and down. Worse case, I hold them until maturity and make back $1,000 per bond, which is 3.5 times my money invested.
     
    #39     Oct 7, 2008
  10. I used to sell them, when they first came out. It was a Merrill product.

    It was a joke. Be careful with our phantom tax.
     
    #40     Oct 7, 2008