Bought TC PYI at $19.05/

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1. Bought 50 of the Trust Certificate PYI at $19.05 (see Disclaimer): I know that I am becoming overly cautious when I start to invest my cash flow in bonds rather than in stocks. Today was a pay day on several positions, and I used the cash flow to buy just 50 shares of a Trust Certificate PYI, which contains a Time Warner bond as its underlying security. The underlying bond has a coupon of 6.625% and matures in 2029. The TC PYI has a lower coupon at 6%.

The prospectus for PYI can be found at www.sec.gov.

The prospectus for the underlying bond, which was issued in 1998, can be found at www.sec.gov

The FINRA site shows that the underlying bond is currently rated as investment grade: Baa2 by Moody's and BBB by S & P: FINRA - Investor Information - Market Data - Bonds - Bond Detail The underlying bond is trading close to its par value, and the trades can be examined at FINRA. At par value, the current yield on the underlying security would be its coupon of 6.625%. While the TC PYI has a lower coupon, it has a current yield closer to 7.89% at a $19 total cost: PYI Stock Quote - Pplus Tr TWC-1 CTF Moreover, PYI also has a better yield to maturity than the underlying bond, due to the current discount to its $25 par value of around 24%. Still, I view it as a marginal add my portfolio of bonds.

Before the onset of the bear market in stocks, this TC was selling mostly in the $22 to $25 range. PPLUS TR SER TWC 1 Share Price Chart | PYI The price went into a waterfall after the Lehman bankruptcy, hitting a closing low of $10.47 on October 10, 2008. PYI: Historical Prices for PPLUS TR SER TWC 1 If I had known about it then, I would have certainly bought it. This TC has recovered since the stock market low in early March, crossing its 200 day moving average line in early April. The chart of the underlying bond at FINRA also shows a lot of stress after the Lehman bankruptcy, until a panic bottom was found by the institutional investors in the underlying bond price in October. The TC underwent a more disastrous plunge, and presented a discount to the already discounted price of the underlying bond in early October 2008, when PYI briefly traded at more than a 50% discount to its par value.

I thought that this article from the TheStreet.com was a helpful summary of some important indicators about the health of the U.S. economy.

There are a large number of Trust Certificates that contain a bond from a single issuer that trade on the stock market. Trust Certificate Links in One Post Information can be found about them, including links to their prospectuses, by registering with the free site QuantumOnline, and then look under Third Party Trust Preferred (viewed as a misnomer by me): Third Party Trust Preferred Securities Table - QuantumOnline.com

I lump Trust Certificates, Trust Preferred and the so called Baby Bonds (mostly $25 par value securities rather than a $1,000 par value per bond) into a category called exchange traded bonds: Exchange Traded Bonds: Most of the the exchange traded bonds are $25 par value securities, but some like XKK and PMK have a $10 par value. Each exchange traded bond needs to be checked on all of the particulars, like priority status, par value, maturity, cumulative features and deferral rights, etc.