- quote -

My bad! Showing my age I guess.

It's still Merill, Lynch, Pierce, Fenner & Bean, right? ;-)

By the way, good point about the bid/ask spreads when purchasing
individual bonds. For an investor, they can really drive up the expenses
in a fixed income portfolio. Moreover, I think it's fair to say that
transperancy is not ideal in the bond market and the little guy is at at
significant disadvantage when he faces off against the Masters of the
Universe. All in all, you're better of being Bogle and finding a low cost
open end mutual fund or ETF.

- quote -

I didn't want to nit pick about the Shearson thing...

bondguy1824 <bondguy1824[at]gmail.com> writes:
- quote -

Vanguard charges 0.11% - 11 basis points - on their ETF
which tracks the Lehman Agg. Even if you could put together
a portfolio which tracks it well, unless you had a huge
heap of money, you'd probably come out spending way more
than that on bid/ask spreads even assuming that your time
and effort costs nothing. Good luck beating that. Their
open-ended no-load share class of the same is 0.20% and
their "admiral" shares for folks with > $50k to invest
also charge 0.11%.

I guarantee you that when Vanguard or Fidelity executes
a bond trade, they get a much better price than almost
any individual when he trades the same bond.

FWIW:
iShares recently started AGG, which also tracks the Agg,
for 0.20%.

Fidelity's FBIDX charges 0.31%.

There are other reasons to go with individual bonds,
especially if you are building, say, a treasury ladder.

But, no, it's awfully hard to beat 0.11% managing a
diversified bond portfolio.

(And, btw, Lehman hasn't had "Shearson" in its name
for a long time - since 1993)


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Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

On Nov 3, 6:16 pm, p...[at]his.com (Paul Michael Brown) wrot
- quote -

Because the fees charged, even those charged by an index fund (which
should be low because the fund manager is not adding any value) are
too high. Unless you are referring to a small amount of money, funds
rarely make sense over other options

- quote -

While none of this rivals particle physics in complexity, it's still
pretty dense stuff. And as the thread starter demonstrates unless a fixed
income investor really truly has it down cold he's always going to worry
that he's not getting a fair deal. Moreover, the fixed income investor who
buys invidual bonds has to figure this out for every last bond. Oh, and he
needs to have enough bonds in his portfolio to be diversified.

Again, not impossible. But undeniably complex and time consuming. Why not
just buy a fund that tracks the Shearson Lehman Aggregate Bond Index and
be done with it?

On Aug 7, 10:27 am, "nomail1...[at]hotmail.com" <nomail1...[at]hotmail.comwrote:
- quote -

First of all, don't be afraid to ask the question of your
salesperson. As someone that ran a bond trading desk for many years,
I was on the other side of those questions (the "director" you refer
to). A question on LIBOR would rank in the upper end of intelligent
and relevant ones.

The only thing that is missing here some information, which is why you
need to question your salesperson. I don't, however, think there is
anything "fishy" here. The difference is tiny and the discrepancy is
most likely due to incomplete information. I will assume from your
posting that you are buying a retail investor-targeted bond (If you
want my thoughts on that product, please email me directly). Since
those bonds are generally priced once a week, a 3 and 5 yr bond with
zero spread to LIBOR should have the same rate. But, something is
missing. One thing is that the coupon is LIBOR flat (zero spread) but
spread to swap rates is different. This would happen in a normal
environment as an investor should be compensated with higher rate for
a more risk (3yrs vs. 5yrs, among other things). The second is that
the issues were repriced during the week. Given the volatility of the
market, especially in the front end (short maturities) of the yield
curve, this is a strong possibility. I suspect, however, that there
is a miscommunication somewhere along the line. I don't know what
company's bond you are buying, but I would guess that the 3yr was
priced at LIBOR minus 1/8 (.125) and the 5yr was priced LIBOR minus .
075. The final possibility is that that the LIBOR rate they are using
isn't a single number. There is a bid side to LIBOR, an offer (ask)
and a mid point. They could be using one rate for one issue (say the
offer for the 3yr) and another for the 5yr (say the bid side). Both
could be LIBOR and yet have zero spread.

Hope this helps


======================================= MODERATOR'S COMMENT:
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On Aug 7, 7:27 am, "nomail1...[at]hotmail.com" <nomail1...[at]hotmail.comwrote:
- quote -

I mean to write: "and honestly, I know will __not__
invest in these bonds anyway".

Darn typos! I need a computer that will automatically
enter the word "not" wherever I intended it :-).

A corporation offers two bonds (3-yr and 5-yr) which,
they say, are both based on the 6-month LIBOR rate
at the time of issue "plus or minus a spread". The
corporation insists that currently there is no spread.
Yet the 3-yr annual interest rate is 5.1625%, and the
5-yr annual interest rate is 5.2125%.

Doesn't that mean that there **must** be a spread
for at least one of those bonds; otherwise, wouldn't
both bonds have the same interest rate because they
are based on the same LIBOR rate? Or do I have a
fundamental misunderstanding about how the interest
rate is determined?

To be fair to the corporation, there is room for some
miscommunication. Since I qualify only for the 3-yr
bond (due to the minimum investment requirement),
they might have meant that there is no spread only
for the 3-yr bond.

But according to bankrate.com, the LIBOR rate for
"the week" of Aug 1 is 5.33% (I don't know how they
determined that since BBA LIBOR rates are set
daily), and the bond rates quoted by the corporation
are valid for Aug 1-7. I cannot find Aug BBA LIBOR
rates. But looking at July, the largest variation is
0.0838 pct pts for the month. So it seems unlikely
that 5.1625% is the current BBA LIBOR rate.

I would ask the bond sales rep. But I have already
bothered her with so many nitpicky question that I
am becoming a pest -- and honestly, I know I will
invest in these bonds anyway. I feel guilty asking
more question just for my edification. Moreover, she
is inexperienced, so she must relay such questions
to a "director".

I just want to know if I have a fundamental error in
my understanding of how LIBOR rates are used, or
if others agree that the corporation facts or numbers
(or bankrate.com's ;-) seem fishy.