why not put it all in baby bonds?

Discussion in 'Fixed Income' started by zedDoubleNaught, Feb 13, 2021.

How much of your uninvested cash would you put in baby bonds?

  1. 10% or less

    4 vote(s)
  2. around 25%

    1 vote(s)
  3. around 50%

    1 vote(s)
  4. around 75%

    0 vote(s)
  5. all in 100%

    0 vote(s)
  1. I saw an article on seekingalpha where the author was making the case for 'baby bonds'. These are usually listed with a name like 'n.nn% Notes due 2024', with the percent being 6%, 7%, 8% or so. His case was that despite the Covid blip of Mar 2020, the price remains fairly stable over years. An example is ticker : SACC. Why not move all my uninvested cash into them to collect the yield, and sell when I want to invest in something?

    It sounds so easy -- which makes me think I'm missing important details. Any downsides or unknown risks, or anyone had a bad experience with them?

    Considerations I can think of off the top of my head:
    - be sure to look into to them to diversify, be sure a collection of 10 of them are not all the same company or industry
    - tax liability makes muni CEF's about the same yield, but muni CEF's have more price volatility, so would miss out on potential capital gains
    - I just looked at a 4 - 5 charts, but are there cases where the bond payer(s) defaulted, and it went to $0?
    - SACC (prime example) only traded 445 shares Friday, so illiquidity could be a risk
    - do they have complicated tax docs or filings, like K-1's from MLPs? (Those are so bad, I accept not getting their high-yield just because of the tax filing headache)
    murray t turtle likes this.
  2. %%
    ANY DOWNsides??
    Sure to happen\give it enough time \with putting ''all'' in anything. Any exceptions prove the rule. Sounds like your guts know that. Good yield with a wild chart
  3. Baby bonds = Exchange traded debt. A notch above preferreds on the debt recovery ranking scale. Sometimes illiquid and very thinly traded.

    Think of them as preferreds. They do fine, until something happens. Then the bottom drops out of them. And they are callable. That sucks when you purchase something for $27 that has a $25 par and is called a month later, which seems to be happening more frequently these days. Quantum online will be your friend.

    Adding a few to juice a portfolio slightly for some yield if you can confidently hold them (and have confidence in the company) is fine I guess but might be better off just buying regular $1000 denomination bonds.
  4. maxinger


    Similarly, why not put it all in bitcoins?
  5. Look at how your favorite baby bonds did back in Mar-Apr’20 and you’ll see the risk. Lots of stuff fell by half or more.

  6. Not at all a bad idea. They are even profitable if you think about it. Might work out fine for you.
  7. I think they are an okay option and you can consider them if you want to.