July 26, 2004  Email this  Print this
 License or reprint this articleKEEPING YOUR BALANCE
How to Find Good Bond Buys
by Jeffrey R. Kosnett  With interest rates rising, it's time to eye bonds again. The yields on Treasuries don't thrill me -- and the government's escalating debt is another worry -- but certain corporate bonds look right, especially inside an IRA, where you don't have to pay tax on the interest and you can ride out any temporary declines in market value. At times like these I prefer individual bonds to bond funds. (The exception is funds that buy unusual stuff like foreign or junk bonds).
A quick canvass finds some investment-grade issues (BBB by Standard & Poor's or Baa by Moody's) that pay close to or even a hair more than the 8%, the level where the reward justifies the risk, in my opinion. That's the yield to maturity (or yield to call, if the bond is callable). But a lot of the bonds I'm about to discuss are priced close to 100 cents on the dollar, so the current yield and the coupon yield are close to the yield to maturity. Besides, we needn't quibble here over a few ticks.
The deal is this: Ford Motor Company debt is widely available at prices that will let you collect 7% to 8%. The government will pay you 4.5%. Besides Ford, there are similar rates from General Motors, Chrysler, Kodak and Motorola. These aren't the strongest companies on earth any more, but there's no chance they'll default. GM and Ford are in pretty good shape now compared with other times historically. Plus, a lot of these bonds are senior notes, so if there is a disaster you have a prior (or "senior") claim on the company's assets before many other creditors.
If buying individual bonds piques your interest, but you're not quite sure how to start researching them, let me offer a few tips. It's easier to buy bonds than you think.
First of all, you'll need a brokerage account. Firms like Fidelity or Schwab have elaborate bond desks, and buying corporate bonds will be no more complicated than buying shares of stock. The firms' representatives will be able to tell you what's trading today and at what prices.
If you'd rather do your own research, there are a few places you can go on the Web:
General bond news, rates and information. First, try BondsOnline, a general bond site that serves up some yield spreads and other news.
Bondpage.com requires you to open an account, but you can get a 30-day trial password which is the entrée to a wonderful screening tool that lets you indicate a combination of rating, yield, coupon, type of issuer (utility, industrial, financial) and get a list of current offerings. Then you can go to your broker and act.
InvestingInBonds.com is the official Bond Market Association statistical site, so it has ample and timely information. It's also free. Unfortunately, InvestingInBonds.com is cumbersome to navigate. Go and search and let's compare notes on how you found what you did. If you do crack into the database -- you don't have to hack, it is free to the public -- you'll see all kinds of names and opportunities.
Rating agencies. I like Fitch Ratings because Fitch lets the public see more of the research commentaries than Moody's and S&P. But all of them will give you current headlines, the ratings you may need, and some information that can reassure you or frighten you about a specific bond issuer.
Your broker's site. I'm a Fidelity customer, so I'm familiar with their site. If you scroll through enough screens, you'll find the list of bonds in inventory and also a good deal of explanatory stuff about yields to maturity and call dates, and a calculator that you can manipulate to show what a bond's price will be under certain interest-rate movements. Other major firms probably have similar information or at least provide a toll-free number for assistance.
All the information in the world won't save you if you buy a bond and then the market goes to pieces. But as tough as it looks right now, with stocks in a slump and bonds facing the possibility of higher interest rates and a less-robust economy than a few months back, I still think getting a good company to pay you 8% a year is a good deal.
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