In the recent article, “Are You Really a ‘Long-Term’ Bond Investor?” I mentioned that even in today’s low-interest-rate environment, individual bonds of moderate credit risk can still be found with yields above 5%. Not surprisingly though, in order to realize those types of yields, investors must purchase longer-term bonds and be willing to hold them for many years to come. For a true “long-term” bond investor with the multi-decade goal of capturing 5% or 6% returns from a bond portfolio, having exposure to longer-term individual bonds can make that possible, even in today’s difficult-yield environment.
To illustrate how many different CUSIPs can currently be found with investment grade ratings and yields above 5%, I ran a screen in search of individual bonds meeting those criteria. The screen returned 304 CUSIPs with yields as high as 6.913%. Of the 304 CUSIPs, 36 were trading under par. As you might expect, when dropping the credit-rating criteria three notches into “high yield” territory (Ba3/BB-), the number of CUSIPs returned by the screen jumped. That new number was 467 with 117 trading under par.
Below you will find a selection of those longer-term bonds with investment grade ratings yielding over 5%. The selection of 20 bonds I chose to present is not a recommendation to purchase any of the notes, and it does not mean that I would purchase each of the notes for my own portfolio. Only you can determine if taking the counterparty risk associated with purchasing any particular individual bond is right for you. Additionally, I am not stating that now is the ideal time to purchase the securities. Yields most certainly could head higher from here. Instead, I simply want to demonstrate that it is possible, despite today’s low-yield environment, to build a portfolio of individual bonds that, absent a default by the issuer, could provide returns over a multi-decade time period that many investors would find adequate for the bond portion of their portfolios.
In no particular order, here they are:
- 1. Kinross Gold’s 6.875% coupon, 9/1/2041 maturing notes, CUSIP 496902AK3, were recently offered for 101.822, a 6.728 yield-to-worst.
- 2. Cliffs Natural Resources’ 6.25% coupon, 10/1/2040 maturing notes, CUSIP 18683KAC5, were recently offered for 94.36, a 6.702 yield-to-worst.
- 3. AngloGold Ashanti Holdings Finance’s 6.50% coupon, 4/15/2040 maturing notes, CUSIP 03512TAB7, were recently offered for 100.369, a 6.47% yield-to-worst.
- 4. Telecom Italia Capital’s 6.00% coupon, 9/30/2034 maturing notes, CUSIP 87927VAM0, were recently offered for 97.595, a 6.204% yield-to-worst.
- 5. Domtar Corp.’s 6.25% coupon, 9/1/2042 maturing notes, CUSIP 257559AJ3, were recently offered for 103.375, a 6.003% yield-to-worst.
- 6. Barrick Gold’s 5.25% coupon, 4/1/2042 maturing notes, CUSIP 067901AH1, were recently offered for 89.926, a 5.987% yield-to-worst.
- 7. Alcoa’s 5.95% coupon, 2/1/2037 maturing notes, CUSIP 013817AK7, were recently offered for 99.634, a 5.978% yield-to-worst.
- 8. Southern Copper’s 5.25% coupon, 11/8/2042 maturing notes, CUSIP 84265VAG0, were recently offered for 90.85, a 5.909% yield-to-worst.
- 9. Jeffries Group’s 6.25% coupon, 1/15/2036 maturing notes, CUSIP 472319AC6, were recently offered for 103.573, a 5.96% yield-to-worst.
- 10. Western Union’s 6.20% coupon, 11/17/2036 maturing notes, CUSIP 959802AH2, were recently offered for 103.923, a 5.889% yield-to-worst.
- 11. Hewlett-Packard’s 6.00% coupon, 9/15/2041 maturing notes, CUSIP 428236BR3, were recently offered for 102.255, a 5.835% yield-to-worst.
- 12. Vale S.A.’s 5.625% coupon, 9/11/2042 maturing notes, CUSIP 91912EAA3, were recently offered for 95.654, a 5.939% yield-to-worst.
- 13. Petrobras Global Finance’s 5.625% coupon, 5/20/2043 maturing notes, CUSIP 71647NAA7, were recently offered for 96.545, a 5.871% yield-to-worst.
- 14. Hospira’s 5.60% coupon, 9/15/2040 maturing notes, CUSIP 441060AL4, were recently offered for 97.213, a 5.804% yield-to-worst.
- 15. Newmont Mining’s 4.875% coupon, 3/15/2042 maturing notes, CUSIP 651639AP1, were recently offered for 86.68, a 5.835% yield-to-worst.
- 16. Delhaize Group’s 5.70% coupon, 10/1/2040 maturing notes, CUSIP 24668PAE7, were recently offered for 100.046, a 5.696% yield-to-worst.
- 17. Teck Resources’ 5.40% coupon, 2/1/2043 maturing notes, CUSIP 878742AZ8, were recently offered for 96.389, a 5.652% yield-to-worst.
- 18. Murphy Oil’s 5.12% coupon, 12/1/2042 maturing notes, CUSIP 626717AG7, were recently offered for 94.504, a 5.504% yield-to-worst.
- 19. The ADT Corporation’s 4.875% coupon, 7/15/2042 maturing notes, CUSIP 00101JAG1, were recently offered for 92.745, a 5.37% yield-to-worst.
- 20. Petroleos Mexicanos’ (PEMEX) 5.50% coupon, 6/27/2044 maturing notes, CUSIP 71654QBE1, were recently offered for 101.50, a 5.40% yield-to-worst.
You will notice that each of the 20 individual bonds listed above was recently being offered for less than 104 cents-on-the-dollar. If you come across bonds with no call features and attractive yields and credit risk, you should not rule out purchasing notes trading much higher over par than those mentioned above. One such example is Ford Motor Company’s non-callable, Baa3/BB+ rated 7.75% coupon, 6/15/2043 maturing notes, CUSIP 345370BM1, recently offered for 119.145, a 6.319% yield-to-maturity.
Finally, keep in mind that prices can vary greatly depending on the broker you use and changes in spreads and benchmark rates.
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