GE Capital Corp Bond (GEB)

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Investing

Postby rkdlib » Tue Jun 25, 2013 8:09 pm

Hi,
I've used your advice several times and am seeking more. I have a Vanguard account and have moved most of my investments to it. However, I bought a GE Capital Corp Bond (GEB) in Jan 2013 while I was with Ed Jones. It has continued to lose money. I'm concerned about losing more if I sell it now and of course, what would I replace it with. Any suggestions?

Thank you.
Rhonda
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GE Capital Bond

Postby MnD » Tue Jun 25, 2013 10:40 pm

Hi Rhonda,

I would suggest you edit the thread title to GE Capital Bond and you might get more responses.

It's a 4.875% coupon GE Capital A1-rated 40 year exchange traded bond issued Fall 2012 at $25 and maturing Fall 2052.
The price for this bond has not done anything that any other investment grade 40-year bond would have done in the recent rising interest rate environment.
It went up a bit after issue to near $26 and now trades at around $22 and change, so the current yield is now closer to 5.5%.

It's a fairly high rated investment grade bond with a very long maturity and consequently a higher yield.
It will exhibit a great of deal of price volatility as interest rates change.
But as long as GE Capital (a wholly owned subsidiary of GE) remains in business it will pay $1.22 per share in interest annually.
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Re: Investing

Postby rkdlib » Wed Jun 26, 2013 11:27 am

Thank you Mnd. I will. [See my post below --admin LadyGeek]
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GE Capital Corp Bond (GEB)

Postby rkdlib » Wed Jun 26, 2013 11:29 am

Hi,
I've used your advice several times and am seeking more. I have a Vanguard account and have moved most of my investments to it. However, I bought a GE Capital Corp Bond (GEB) in Jan 2013 while I was with Ed Jones. It has continued to lose money. I'm concerned about losing more if I sell it now and of course, what would I replace it with. Any suggestions?

Thank you.
Rhonda
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Re: Investing

Postby SHB » Wed Jun 26, 2013 11:39 am

Maybe I think of bonds differently than others or maybe there's just a lot of these threads coming up because of rising interest rates, but, who cares if the value of your bond is falling? Its still the same bond you purchased and you're still getting the same yield you were happy with when you first bought it. Unless the credit worthiness changes its still the same bond, same yield, same company and you'll still get your principal back at maturity.
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Re: Investing

Postby rkdlib » Wed Jun 26, 2013 1:25 pm

Thank you, SHB.
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Re: GE Capital Corp Bond (GEB)

Postby fareastwarriors » Wed Jun 26, 2013 6:31 pm

rkdlib wrote:Hi,
I've used your advice several times and am seeking more. I have a Vanguard account and have moved most of my investments to it. However, I bought a GE Capital Corp Bond (GEB) in Jan 2013 while I was with Ed Jones. It has continued to lose money. I'm concerned about losing more if I sell it now and of course, what would I replace it with. Any suggestions?

Thank you.
Rhonda


You only lose if you sell.

You can keep holding it and collect the quarterly interest payments. Besides it might get called away or redeemed depending on the terms of the debt or just hold to maturity. Is it a huge position relative to your portfolio?
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Re: GE Capital Corp Bond (GEB)

Postby LadyGeek » Wed Jun 26, 2013 7:36 pm

FYI - The OP started a new thread, so I merged the threads together to put everything in one spot.

BTW, the OP can change the thread title by editing the Subject line in Post #1.
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Re: GE Capital Corp Bond (GEB)

Postby rkdlib » Thu Jun 27, 2013 2:29 pm

Thanks for the info.
r
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Re: GE Capital Corp Bond (GEB)

Postby hollowcave2 » Thu Jun 27, 2013 2:44 pm

You're already looking at this investment after only 6 months of holding it. Bonds are longer term investments and you need to hold them awhile. So this tells me that you've exceeded your risk tolerance and need to reexamine your investor profile. This holding has been following the market and obviously sensitive to perceptions about rates. But I don't see a reason to sell unless you go to a mutual fund or CD. If you go for a higher yield, you will have volatility. If you cannot tolerate that, then perhaps it's good to sell because it exceeds your risk tolerance. But then you need to reinvest in something that's less volatile, with a correspondingly lesser yield. The decision will ultimately depend on your time horizon and risk tolerance.
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Re: GE Capital Corp Bond (GEB)

Postby rkdlib » Thu Jun 27, 2013 2:48 pm

Thank you.
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Re: GE Capital Corp Bond (GEB)

Postby MN Finance » Thu Jun 27, 2013 3:26 pm

Regardless of credit quality, preferreds have more interest rate risk than any conventional bonds. For many years you will see volatility above more traditional fixed income investments. If rates spike or there's another credit crunch, this bond could easily trade at 1/2 price
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Re: GE Capital Corp Bond (GEB)

Postby MnD » Thu Jun 27, 2013 4:04 pm

MN Finance wrote:Regardless of credit quality, preferreds have more interest rate risk than any conventional bonds. For many years you will see volatility above more traditional fixed income investments. If rates spike or there's another credit crunch, this bond could easily trade at 1/2 price


It is a conventional, senior obligation unsecured bond. Not preferred stock.
http://www.sec.gov/Archives/edgar/data/ ... _424b2.htm

It is exchange traded note issued at $25 which is fairly common for bonds intended to be marketed to retail investors.
It's callable on or after October 15, 2017 at $25.
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Re: GE Capital Corp Bond (GEB)

Postby Valuethinker » Thu Jun 27, 2013 4:24 pm

MnD wrote:
MN Finance wrote:Regardless of credit quality, preferreds have more interest rate risk than any conventional bonds. For many years you will see volatility above more traditional fixed income investments. If rates spike or there's another credit crunch, this bond could easily trade at 1/2 price


It is a conventional, senior obligation unsecured bond. Not preferred stock.
http://www.sec.gov/Archives/edgar/data/ ... _424b2.htm

It is exchange traded note issued at $25 which is fairly common for bonds intended to be marketed to retail investors.
It's callable on or after October 15, 2017 at $25.



In all likelihood original poster will continue to get the coupon paid every year, and probably it will be called in 2017. If interest rates rise then it will stay at a discount to face value (ie $100) and not be called until the final expiry date.
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Re: GE Capital Corp Bond (GEB)

Postby MN Finance » Thu Jun 27, 2013 8:05 pm

MnD wrote:
MN Finance wrote:Regardless of credit quality, preferreds have more interest rate risk than any conventional bonds. For many years you will see volatility above more traditional fixed income investments. If rates spike or there's another credit crunch, this bond could easily trade at 1/2 price


It is a conventional, senior obligation unsecured bond. Not preferred stock.
http://www.sec.gov/Archives/edgar/data/ ... _424b2.htm

It is exchange traded note issued at $25 which is fairly common for bonds intended to be marketed to retail investors.
It's callable on or after October 15, 2017 at $25.


Ok, I didnt look it up just ticker and price looked like a preferred. So maybe its slightly less volatile than I stated due to its position in pecking order but its still a 40 yr bond and will fluctuate wildly
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Re: GE Capital Corp Bond (GEB)

Postby nedsaid » Fri Jun 28, 2013 1:37 am

It is amazing that fixed instruments sold by the Investment Houses seem to pay a good yield but have declining market values. This happened to a family member and to a friend of mine. Is the investment house dumping stuff from their own account unto their clients? Stuff they don't want to own anymore? I sure wonder when I read threads like this.
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Re: GE Capital Corp Bond (GEB)

Postby Valuethinker » Fri Jun 28, 2013 6:19 am

nedsaid wrote:It is amazing that fixed instruments sold by the Investment Houses seem to pay a good yield but have declining market values. This happened to a family member and to a friend of mine. Is the investment house dumping stuff from their own account unto their clients? Stuff they don't want to own anymore? I sure wonder when I read threads like this.



You are suffering from recency effect-- the last few weeks.

*All* bonds have been falling in this rout. Looking since 2009, for corporate bonds, we have had a *bull* market in corporate bonds (with the exception of defaults). Defaults have in fact been low (for a recession this bad) and both investment grade (BBB- or above) and High Yield have done extraordinarily well.

The 'quest for yield' has led investors to buy bonds of lower credit quality. If fixed income markets return to 'normal' then the risk premium, ie the additional yield, demanded by the market for these bonds will rise, thus lowering the prices against safe US Treasury bonds (ie both types of bonds could go up or down in price, but the riskier bonds are likely to do worse).

Swensen amongst others (and Swedroe) have noted the risks of investing in corporate bonds (chiefly, many of them have 'heads I win, tails the investor loses' call provisions) vs. US Treasuries (which are not callable).
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Re: Investing

Postby Valuethinker » Fri Jun 28, 2013 6:26 am

rkdlib wrote:Hi,
I've used your advice several times and am seeking more. I have a Vanguard account and have moved most of my investments to it. However, I bought a GE Capital Corp Bond (GEB) in Jan 2013 while I was with Ed Jones. It has continued to lose money. I'm concerned about losing more if I sell it now and of course, what would I replace it with. Any suggestions?

Thank you.
Rhonda



Rhonda

Your choices are:

- sell the bond at a loss and put the money into a bond fund or in line with your asset allocation. This is generally the most prudent course

- hold onto the bond. We have established here that if interest rates rise, you won't get your principal back until after 2040. However if interest rates *fall* then the bond will be *called* in 2017-- you'll get your money back but have to reinvest it in some other bond or fund at a lower rate/ yield. there's also the risk GE could go broke. In the short term (next 5 years) I would give that nearly zero chance, but in the long run, who knows? GM was once the largest industrial corporation in America, the bluest of blue chips, and yet bondholders received maybe 10 cents on the dollar in its bankruptcy.

What would I do? For prudence, the former. If I felt like gambling, and this was not a large part of my portfolio, I'd sit for a few months and see if the price recovered a bit before selling it. But definitely note to self, sell by December 2014, say-- whether a good decision or a bad one to wait.

What bond fund to invest in? I would say Vanguard Total Bond Market, or an Intermediate or Short Term US Treasury Bond fund. TIPS bonds are starting to look attractive again, having had a very bad run (prices down, yields up), so the Vanguard TIPS bond fund, or the ST TIPS bond fund (safer).

It does depend on when you feel you need the money. Almost any option you choose will cut your income from this investment, as it is paying quite a good yield.

I DO NOT recommend that you put it into a High Yield bond fund-- that's taking on more risk.
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Re: GE Capital Corp Bond (GEB)

Postby nedsaid » Fri Jun 28, 2013 10:18 pm

No this is not recency bias but real life experience over a lot of years.

A friend mine who was put into preferred stocks noticed the great yield and declining share price. This was some years ago.

My family member's experience with bonds were over 15 years and had problems with three different bond issues and a preferred stock. Two of the bond issuers later went into bankruptcy. The third was a company that was purchased, the family member saw some volatility in this issue but later was able to get out okay. I was suspicious that my family member was getting stuff dumped on him/her buy the brokerage firm.

These experiences were during the middle of the bond bull market.
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