Now that you almost need a magnifying glass to see the interest rate on Treasuries, a report from Reuters says that bond investors are chasing paper backed by pizza businesses, movie royalties, even time-share properties in the race for yield.
The trend is expected to increase this year. The news service says demand is so strong “the value of many bonds, which are typically held to maturity, have soared in secondary-market trading, allowing investors to sell them at a profit.”
“The promise of higher returns has helped bring out potential buyers, sparking unusually high demand in secondary markets for assets that in the past were treated as buy-and-hold securities,” the article notes.
“For example, Domino’s sold $1.575 billion in 6-1/2-year, BBB-rated bonds late last year at a yield of 5.25%. A seven-year U.S. Treasury note yields 1.42%, while the average U.S. investment-grade corporate bond yield stood at 2.86%, according to the Merrill Lynch bond index.
“Since then, those bonds have traded at around 3%, according to ABS (asset-backed securities) traders.”
Purchasers of these bonds are typically not mom-and-pop investors but institutions such as pension funds that need investment-grade bonds.
“Iconix, which owns 31 brands and trademarks, including the ‘Peanuts’ cartoon characters, London Fog and Ed Hardy apparel, increased a transaction last year from $500 million to $600 million to satisfy investor demand,” Reuters says.
“The yield on $350 million of bonds backed by Miramax’s library of more than 700 films, including ‘Pulp Fiction’ and ‘Good Will Hunting,’ has tightened to around 2% from 6.3% when they were sold in 2011,” ABS traders told the news service.
We have to admit that we buy more pizzas than bonds, especially bonds backed by the films of Quentin Tarantino, so we find this tasty refresher series on bonds at CNNMoney worth putting on the table.
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