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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (5926)	1/23/2004 6:55:29 PM
From: Douglas M. Benedict	Respond to of 110194

What a waste of everyone's time...clearly that article is misleading...and should be expunged for it's non-factual comments...(refer to it's imbedded link) When the bonds were issued..interest rates were higher...the call feature was as of 2004 with an extension to 2009 (pretty common practice in the bond market as a sweetener back then...the description says it all... in case you don't get it...the rate offered was higher at the time than comparables maturing in 2004's but not 2009's to make the financing work)...had rates been higher today...the government would extend the term to 2009 as it would be in their best interest...as would you if you could extend your mortgage... As reality is...rates are lower and it makes economic sense to pay these off at the early maturity date and refinance at lower rates..as would you with a mortgage... Pretty simple analysis... Buyers of these bonds knew the facts..or else they were misled...which I highly doubt... These are called "extendibles"...look it up... The most likely reason to extend them to their later maturity would be : 1) rates had risen (ie: higher than this rate) 2) rates were the same for the remaining 5 year term (avoid added expense of re-issue) 3) credit quality of the issuer had erroded making re-financing a difficult proposition... The most likely reason for paying them off would be: 1) rates were lower now. 2) issuer was flush with cash and had no further need for financing. 3) re-financing at lower rates or for a longer term made practical sense... In any case...the person posting that ALERT had ulterior motives... There are hundreds of such early redemptions occurring... I can't believe how such an issue permeated the threads like "chicken little"...makes you wonder.... Hate to break your bubble..but it's pretty common practice these days... Bond desks always price the issue to earliest maturity...just ask them...(ie: the longer date was a sweetener which would only have a value in a higher interest rate environment on the assumption they would postpone payment of principle...but to whose benefit??? obviously the issuers, as the purchasers were compensated for the risk by being offered higher rates than a comparable 2004 maturity to take such a risk ie: in 1979, a five year extension to be effected in 25 years is hardly a pressing concern, something one would weather in exchange for an immediate higher yield...there are also permutations of this where the rate to be paid on the extra 5 years is actually higher)... By now, you probably dozed off...as should anyone reading that misleading posting... ;) I can't believe that Jim Sinclair didn't see this immediately...yowza.... and I go back to sleep...