Kicker Bonds: How to Buy

03 Apr In Kicker Bonds

Kicker Bonds: How to Buy

We have spoken about our love for kicker bonds. Especially during a time of rising interest rates. Today we will discuss how to construct and pick out a suitable kicker bond.

Pick a high quality bond. You’ll want a credit rating of A or better by either Standard and Poors or Moody’s. One of the goals when investing in a kicker bond is capital preservation. You want to be able to sleep at night knowing that the credit quality of the kicker bond you buy is sound.
Find a bond with high coupon. We typically prefer 4% or higher. The higher the coupon, the greater the ‘kick up’ can be.
Make sure the bond has a next call date of 30 days or longer, up to two years. The closer the first call is to the purchase date, the sooner you can start to realize the ‘kick up’ in yield.
Determine your maturity. Depending upon your investment parameters, your final maturity could be 5 years out, or 30 years away. Remember, the greater the amount of time between the first call and the final maturity the greater chance of a large kick up in yield.
Make sure the yield to first call is positive. You’re not investing to lose money, make sure your yield to call is positive so you do not lose money if the bonds are called at the earliest option.

If you follow these five simple steps when starting to invest in kicker bonds, you will find the appropriate one for your objectives. One of these steps may have more importance to your overall investment objective and that will shape the kicker bond(s) that work for you. Remember, whether you are purchasing your kicker bonds on your own, or working with a registered investment adviser kicker bonds are a great way to put funds to work in an environment where interest rates could be on the rise in the future.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

All bonds and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. Supporting documentation for any claims or statistical information is available upon request.

Municipals and tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security’s tax-exempt status (federal and in-state) is obtained from third-parties and Las Olas Wealth Management of Nat Alliance Securities LLC does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

Dean Myerow is a municipal bond market asset manager and along with partner, Sean Vesey the team structures institutional and high net worth investor portfolios at Las Olas Wealth Management of NatAlliance Securities LLC.

Dean Myerow