Safe Short Maturity Bonds – September 24, 2009

 

If you have reviewed my Safe Investing Portfolio, you will see that I am currently only invested in income investments with the exception of a small portion of gold (that was initiated quite a while ago when gold was much cheaper). I have a few bonds and CDs maturing in the months ahead so  I am now looking for good, safe replacements that are available in the market.

At the present, 25 percent of my safe investing portfolio is in safe corporate bonds of short maturity (around 2 years).  Below are a few bonds available in the secondary market I’m considering. When reviewing the available bonds I pay attention to the company’s fundamentals since the default risk is my primary concern. Yes, yield is important to me but obviously safe yield is the key to me. Otherwise, I’d be investing in low-rated companies.  Here’s a reiteration of a few of my rules:

 

  • Only invest in sectors of the economy that will be hit less hard from further financial crisis and recession.  This means I avoid banking, retail and real estate. I also try to avoid cyclical industrials.
  • Pick companies with an S & P rating of A- or higher. I will consider BBB+ companies but will only choose them if I think they may be upgraded soon.
  • Pick companies that seem more likely to be upgraded versus downgraded. At most I try to pick industries and companies that seem the most stable.
  • When presented with a choice of bonds with essentially equivalent net-yields, choose the bond with the lowest yield and therefore the lowest market price. This really is more of a philosophical rule than financial one.

Here are a few of the bonds I am currently reviewing and considering.. You will note that I am now considering bonds with as much as 3 years to maturity.  This is because of the dearth of attractive bonds available today.  I’d rather go out a bit in maturity than increase risk through lower rated companies or more cyclical industries.

 

  1. Pfizer, Inc.  AAA, 3-15-2012, 2.572 effective yield, 106.37
  2. Science Applications Int. Corp, A-, 7-01-2012, 2.572 effective yield, 109.718
  3. Dominion Resource, A-, 6-30-2012, 2.572 effective yield, 109.709
  4. Weatherford International, BBB+, 6-15-2012, 3.117 effective yield, 107.306

After I have finished my review process, I’ll let you know which of the above I chose.