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Strategies & Market Trends : Strictly: Drilling II
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To: isopatch who wrote (4128)11/18/2001 10:20:46 AM
From: majaman1978  Read Replies (1) of 36161
 
Iso, I have been playing bonds called inverse floaters which are tied to FHLMC, and if rates continue to drop they pay tremendous returns. I have one currently paying 35% and a newer one about 18%.. The rates fluxuate daily and are tied to LIBOR. They pay monthly. If rates rise, however, they basically become zero coupons and you're stuck with them for their life, maybe 30 yrs. So I don't go too overboard with them. But they can be beneficial in a bond portfolio. You can also buy a TIB which is similar but is capped if LIBOR does not rise to a certain rate according to the prospectus. There's a new one offered at 10% fixed. The other risk (if you could call it that) is faster prepayments due to falling rates will eventually return all of your principal in a relatively short period of time and you will have to look elsewhere to reinvest.
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