Thursday, March 25, 2010

Bought 100 TDA at 25.22/5 Year Treasury Auction/Bought 50 GJD at 17.8-Roth IRA

1. Cyclical Bull Market in the Context of Long Term Secular Bear Market: Todd Harrison wrote a column for MarketWatch giving ten reasons why the rally since March 2009 is a cyclical bull move within the confines of a long term secular bear market. I have expressed similar views in the past. more on 1982 or 1974 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? 1976 or 1982 However, I am starting to see some signs that support the opposing view. I am agnostic on the ultimate resolution, ready and willing to swing either way.

2. 5 Year Note Auction: The Treasury auctioned the 5 year note yesterday and the results added to the selling pressure after being announced mid-day. Personally, I would prefer eating broccoli and spinach every day for the rest of my life than to loan the beast money for five years at 2.605%. Treasury Auction Results for the 5 Year. pdf And, it goes without saying that I really hate spinach and broccoli. I would whether eat grass. Nonetheless, the yield of 2.605% was higher than the market expected which caused an abrupt end to a mid morning rally. The WSJ described the auction as weak. I am just grateful that anyone is willing to feed the beast at that rate. The government's borrowing cost has nowhere to go but up in my view. This is the link to the Federal Reserve's date on the weekly yield of the 5 year note since 1962:

Bonds had a bad day yesterday. TLT, the ETF for the 20 year treasury, fell $1.66 or 1.83%. The TIP ETF fell .81%. I compare the performance of the TIP ETF with the ETF for the 7-10 Treasury, IEF, which declined 1% yesterday. BND, the total bond market ETF from Vanguard, fell .5% to $79.22. I explained in this old post why I sold my position in BND at $78 in 2008 and have not bought it back: For BND: Is it Safe is not the Right Question. Instead Ask What are the Risks & Rewards/Assume Lost of Principal Possible

This is an analysis from the TheStreet TV about the TLT and the double short for the 20 year treasury, TBT.

3. Bought 100 of TDA at $25.22 Yesterday (see Disclaimer): TDA is a senior bond from Telephone and Data Systems with a $25 par value and a maturity in 2041. This bond has a 7.6% coupon and interest is paid quarterly. The next ex interest date is on 3/29/2010 with a pay date on 4/01. The bond is rated investment grade according to I did confirm that information by checking the bond information at FINRA.

This is a link to the prospectus: SEC Filing for TDA CORPORATION The note is callable now at par plus accrued interest. This bond is viewed as the replacement for XFL, which contained a senior Verizon bond, that was called and redeemed yesterday. I would have preferred to keep XFL which had a 9.5% yield at my cost, but I was not given a choice in the matter. One of the undesirable features of TDA is the maturity in 2041 when the OG may not be around to collect par value.

Telephone and Data Systems is a telephone company, traded under the symbol TDS. It is the parent company of the publicly traded U.S. Cellular. I also own 100 shares of an exchange traded bond issued by U.S. Cellular, and I am at my limit for exposure to TDS and its subsidiary. I am already familiar with TDS but I did review briefly its last quarterly report filed with the SEC before making this bond purchase: 10-k.htm In addition to owning 82% of U.S. Cellular, TDS owns 100% of TDS Telecommunications which provides wireline services. As of 12/31/2009, TDS had about 1.1 million wireline customers and 6.1 million wireless customers. U.S. Cellular is the 6th largest wireless phone company in the U.S. This is the link to the Reuters description of TDS and to its key developments page.

I view this holding as at most an intermediate term holding.

4. Prospect Capital (PSEC) (owned): PSEC declared a 41 cent dividend for the 1st quarter, up slightly from the prior quarter. The ex dividend date is 3/29. I still own 150 shares in my taxable account. As previously mentioned, a portion of the dividends paid in 2009 were classified as returns of capital. It is my view that the part of a dividend so classified is an illusory dividend. Sold 50 of the 200 PSEC

5. Bought 50 of the Trust Certificate GJD at $17.8 in the Roth IRA (see Disclaimer): As a result of the redemption of the first mortgage bond from Entergy Louisiana, I was left with a hole to fill in both the taxable and IRA accounts. I really do not view GJD, which contains a junk rated senior bond from Sprint as its underlying security, to be in any way equivalent to that first mortgage bond. As I have said on many occasions over the past few months, the lengthy Jihad by the Federal Reserve against savers has created a bubble in the bond market, raising prices and reducing yields to the point that any option for reinvesting capital is a choice now among undesirable options.

I discussed GJD in prior posts. Bought 50 GJD at 17.49 Current Yield and Yield to Maturity: Comparison of Sprint TCs The coupon of the TC is 6.5%, maturing in 2028 at a $25 par value. My current yield would be over 9% per annum with a yield to maturity of around 10.28% at a $17.8 total cost. Morningstar Bond Calculator: Interest is paid semi-annually in May and November. The last trade on the underlying bond for 3/24/2010, was reported at 80.250. FINRA The underlying bond has a coupon of 6.875% for a current yield at that closing price of 8.57%. The current yield on the TC GJD at a total cost of $17.8 would be about 9.13%. The YTM is higher for the TC too due to its larger percentage discount to its par value.

Although I manage the retirement accounts far more conservatively than the taxable accounts which are much larger, I do not view the options available now in individual bonds to warrant additional purchases in the IRA accounts at current prices. This purchase yesterday of GJD takes the cash in the Roth to less than $200. As cash builds back up there may need to be another focus in security selection other than bonds or bond like investments.

There was some recent news that has had a positive impact on Sprint's common stock:

No comments:

Post a Comment