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Thank you for taking the time to explain me this.

I'm looking at bonds prices at Yahoo Finance (see attached image)

Bonds Screener

And it seems to good to be true: A-rated bonds at YTM rates of 11% and more. What am I missing here? Can I just go and buy these bonds and earn 11% a year and more?

Thanks!

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Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses.

Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of "bonds" have greater default risks and traded at huge discounts.

Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date.

Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments.

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    Why should the prices of these bonds drop? Isn't there always a demand for "A" ranked bonds with more than 10% coupon?
    – cruvadom
    Mar 3 '14 at 14:09
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Those are the expected yields; they are not guaranteed.

This was actually the bread and butter of Graham Newman, mispriced bonds. Graham's writings in the Buffett recommended edition of Securities Analysis are invaluable to bond valuation.

The highest yielder now is a private subsidiary of Société Générale. A lack of financial statements availability and the fact that this is the US derivatives markets subsidiary are probably the cause of the higher rates.

The cost is about a million USD to buy them.

The rest will be similar cases, but Graham's approach could find a diamond; however, bonds are big ticket items, so one should expect to pay many hundreds of thousands of USD per trade.

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  • So you are saying that the high yields are because of high risks, but this does not coincide with the "A" ranking
    – cruvadom
    Mar 3 '14 at 13:45
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    @cruvadom The market perceives the risk to be higher is why yields are higher. Also, there were many holders of A-rated MBSs who were not protected by an A rating. The only thing that can save an investor in bonds is the above mentioned book.
    – user11865
    Mar 3 '14 at 13:58
  • A ratings are below AAA and AA Mar 3 '14 at 15:41
  • @mhoran_psprep A ratings shouldn't sell as junk. Their prices are barely different from AAA.
    – user11865
    Mar 4 '14 at 19:32

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