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 About Donald

Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura. Read More

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We last reviewed the best value bond trades in the 1 to 5 year maturity spectrum on March 18. Today, we update that analysis using trade data from April 17, a relatively light pre-holiday trading day. On April 17 in the U.S. bond market, there were 19,628 bond trades in 3,973 non-call fixed rate corporate bond issues representing $5,317,782,257 in notional principal. Which 20 trades were the best trades of the day, and how do we decide the answer to that question? Today, we answer those questions for bonds with maturities of 1 to 5 years at the request of many investors. The answers to these questions are particularly important given the well-known inability of legacy credit ratings to match the accuracy of quantitative methods used in this series of notes. We ignore legacy ratings in this analysis for that reason.

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Projected one month Treasury bill rates rose by more than 0.25% this week in the 2017 to 2018 period, while T-bill rates in 2021 and beyond declined slightly. Forward 1 month T-bill rates are now projected to peak in the second quarter of 2021 at 3.90%, down from a 3.92% 2021 fourth quarter peak projected last week. This is the fourth consecutive implied peak in one month bill rates, something not seen for a few years. The impact of the peak can be seen in the three dimensional graph of Treasury yield movements (below) and Treasury and mortgage forward rates. The forecast shows projected 10 year U.S. Treasury yields rising steadily to 4.051% in 2024. Projected 15 year fixed rate mortgage yields in 2024 show a rise to 5.773%, down 0.13% from last week.

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Traditional analysis of common stocks uses a wide array of financial ratios to measure value. One of the ratios most often discussed is the dividend yield on a stock. In this note we explain why the dividend yield ignores credit risk. We show that a credit-adjusted dividend yield provides much greater insight to the likely dividend return to common stock investors, as we explained in a recent note on General Electric Company (GE). Using the example of Comcast Corporation (CMCSA), we show that the long-term credit-adjusted dividend ratio is 1.61%, not the commonly quoted 1.86%. The credit-adjusted dividend yield allows investors to compare dividend yields on companies of wildly varying credit risk on an apples to apples basis.

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Comcast Corporation (CMCSA) has a tender offer outstanding for Time Warner Cable (TWC) that is pending regulatory approval . The outcome of that transaction will have a significant impact on the risk and return to both common shareholders and bond holders. Still, in today’s analysis, we make no assumptions about the future and let the bond market facts lead us to the appropriate conclusions. Those facts presumably reflect a trade-weighted guess as to how the Time Warner Cable bid will end up. Today’s study incorporates Comcast Corporation bond price data as of April 14, 2014 to get an institutional, bond market view of the company.

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Vodafone Group PLC(VOD) recently agreed to purchase Spanish cable operator Ono S.A. for 7 billion euros. Vodafone Group PLC itself has been a potential take-over target, with AT&T (T) announcing on January 27 that it had no intention of making a bid. Still, in these notes, we make no assumptions about the future and let the bond market facts lead us to the appropriate conclusions. Today’s study incorporates Vodafone Group PLC bond price data as of April 11, 2014 to get an institutional, bond market view of the company. We analyze the potential risk and return to bondhold

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