I just read that General Motors long term bonds (due 2033) are paying a yeld of 12.6%. Is this a good investment? I cannot imagine the world’s largest corporation going bankrupt-so, what are the main risks?
The risk of GM dissolving is a very real risk these days and that is why they are paying such a high rate. There union liabilities are extreme and they forgot how to design cars. They are getting slaughtered on multiple fronts. The U.S. government might try to bail them out if things get any worse but that won’t even work very long if they can’t fix their extreme problems.
I just looked in Standard & Poor’s and the only GM bond I see for 2033 is 8.38%. However, I think it should be noted that almost all of the GM bonds I see on there, including the 2033’s are B rated, meaning that they’re speculative grade or junk bonds.
That’s the issued interest rate. The yield will be higher if the bond is trading under
face value.
Right. It’s somewhere around what ralph said. Trading way under par…52 week low around 65 and high around 81.
GM just closed 4 plants, if that’s any indicator.
Assume that it’s fair when you consider the risk of default.
Seriously, if those were in greater demand (i.e. if people thought the risk of default was lower), the yield wouldn’t be so high.
Whenever I hear a question like this, I think, “What? Do you figure Warren Buffet just overlooked it?” . . .like Trunk was able to discern a rock-solid play on GM Bonds, but the rest of the investment industry just overlooked it.
Yeah, if GM stays liquid for the next 30 years, and if inflation stays low enough, that’s a great play. How do we measure the size of those “if”'s? Exactly by the bond price which was set by people – no offense – who know a lot more about this than you.
<snark>Have you considered investing in bridges?</snark>