Can someone who understands bonds help me understand this?

Discussion in 'Fixed Income' started by Amahrix, Mar 3, 2020.

  1. Amahrix


    Check attached image..

    Is this bond really offering a YTM of 479% if held until April 15th, 2020? If so, how?

  2. Amahrix


  3. Overnight


    Caveat emptor
    murray t turtle likes this.
  4. Amahrix


    Many months later... we meet again, and you still continue w/ useless comments. contribute something meaningful for once.

  5. bone

    bone ET Sponsor

    The return doesn't matter because the face value of the bond is somewhere in value between super junky to worthless during bankruptcy. The Company ain't gonna pay the bondholders coupon payments during bankruptcy. At best, IF the Company successfully emerges from Chapter 11 they will issue new bonds to the bondholders that are greatly diminished in value as compared to the original issues. Big IF.
    murray t turtle likes this.
  6. Sig


    The mechanics are pretty simple. Let's assume a $100 face value, 0% interest rate bond for simplicity sake that returns principle in a year when it matures. If you can buy the bond today for $20.87 and you get $100 in a year when it matures then viola, you just got a 481% return.

    Of course as @bone and @Overnight pointed out, the chances that this particular bond will actually return the $100 principle at the end of the year is between slim and none and Slim just left town. In fact in the above case the market is telling you that the market consensus is that the bond will return about $.21 on the dollar when all the dust settles from the bankruptcy.
    Amahrix likes this.
  7. kmiklas


    I'm not qualified to give advice, but in my opinion, unless you're a bankruptcy lawyer, stay the heck away from this.

    To buy a common bond from a company that is in the process of declaring bankruptcy is tantamount to putting your money through a paper shredder.

    Maybe you profit in five years or so when the legal teams give you a percentage of return on the fire sale of their office equipment and coffee machines?
    Last edited: Mar 4, 2020
    murray t turtle likes this.
  8. Amahrix


    Thanks for directly answering the question I posed.