2010 Fixed Income March 23rd Corporate Bonds Webinar

Amir Homayoun Rafizadeh - wadvisor

Things to know about Corporate Bonds

Amir Homayoun Rafizadeh, MBAKruse Asset Management

Co-Founder of National Business Owner Advisory Council

Managing Director of Client Educationalso known as “wadvisor” presents:

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Disclosures:

Past performance does not guarantee future results. The following material is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument. The information here should also not be used or relied upon for legal, tax and investment advice. Please

consult your attorney, tax advisor or financial advisor for further consultation. The views discussed here may not be appropriate for all

investors. Please conduct your own due diligence and research. Any forecasts and charts contained here are for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation.

Opinions, estimates, forecasts and any other statements or financial forecasts/market commentary are based on current conditions and are

subject to change without notice. The strategy is developed by Stuart Kruse, President and Founder of Kruse Asset Management. QVP is a

trademark of Kruse Asset Management.


An Interview with Matt Kraus, the bond Guru


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2010 Webinar topics on Fixed Income (11am Central)

2010

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Yield curve and

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Things to know about

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Hedging strategies

that institutions

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Strategies to enhance your fixed

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yield

Things they don’t

tell you about

closed end funds

Bond market

and inflation outlook


Things to know about corporate bonds

In 2009 all we heard was corporations are making more profits and there has been a significant improvement in

corporate earnings. Does that translate to a better pricing for their bonds? Matt and I will discuss the

environment and explore which industry sectors and companies (and their bonds) will benefit the most from

any changes in interest rates.

https://www2.gotomeeting.com/register/557640882

(Mar 23rd - 11 am Central)


Corporate Bonds

What Investors need to know

By Matt Kraus

Kruse Asset Management


What is a Corporate Bond?1. Debt security issued by corporations.

A. F.I securities created for purpose of raising cap.

B. Type of loan agreement between issuer an investor.

2. Backing for bond is payment ability of corporation.

A. Money earned from future operations

B. Physical assets of company.


What is a Corporate Bond cont’d3. Corporate bonds are issued in blocks of $1000 par

value.

4. Most have a set coupon payment structure

and a set maturity date.

5. Call provisions

A. Bonds will state when and at what price.

B. Issuers discretion

6. Corporate bonds maturities

A. 1-30 year range

B. Less then 1 year , commercial paper.


What is a Corporate Bond Cont’d7. Corporate bonds fully taxed.

A. HNW investor should use tax deferred accounts to hold corporate bonds.


Pricing and Ratings1. Corporate bonds; Higher nominal yield than US

Govt and Municipal Bonds

A. Higher risk = Higher yield.

B. Corporate Bonds fully taxed; Govt and Muni have some tax exemptions.

2. Bond Ratings

A. Moody’s and Standard & Poor's(SP)

B. Chance issuer defaults on prin or int.


Moody and S&P ratingsMoody's S&P Meaning

Investment Grade Bonds

Aaa AAABonds of the highest quality that offer the lowest degree of investment risk. Issuers are considered to be extremely stable and dependable.

Aa1, Aa2, Aa3 AA+, AA, AA-Bonds are of high quality by all standards, but carry a slightly greater degree of long-term investment risk.

A1, A2, A3 A+, A, A- Bonds with many positive investment qualities.

Baa1, Baa2, Baa3 BBB+, BBB, BBB-Bonds of medium grade quality. Security currently appears sufficient, but may be unreliable over the long term

Non Investment Grade Bonds (Junk Bonds)

Ba1, Ba2, Ba3 BB+, BB, BB-Bonds with speculative fundamentals. The security of future payments is only moderate.

B1, B2, B3 B+, B, B-Bonds that are not considered to be attractive investments. Little assurance of long term payments.

Caa1, Caa2, Caa3 CCC+, CCC, CCC- Bonds of poor quality. Issuers may be in default or are at risk of being in default.

Ca CC Bonds of highly speculative features. Often in default.

C C Lowest rated class of bonds.

- D In default


5 Things to Consider Before Buying

1. What is the credit rating ?

A. Confident company will pay?

B. Possible downgrades in near future.

2. What is the I.R.(or coupon)

A. Is it high enough to compensate you for risk?

B. What is spread over treas.

C. Is it on a attractive part of yld curve.


5 Things cont’d3. Total return investor A. Liquidity of issue B. Laddering Portfolio not as much as a

concern.4. Does the issue fit in with diversification

goals of portfolio? A. Maturity. B. Industry.5. Structure of Bond. (Callable, reset options,

etc.)


HNW and the Ladder1. Rationale.

A. S.T. maturities –high degree of price stability- lower yields.

B. L.T. maturities- higher yield – more price volatility.

C. Spreading out maturities of portfolio.

1. price stability of short end.

2. Extra yield of long end.


Minuses of Corporate Bonds

1. Not always best fit.

A. Higher nominal rates then Govt or Muni doesn’t mean better fit.

2. Tax implications.

3. Secondary markup from dealers.

A. Try and buy new issue.

4. Best corporate bonds are sometimes callable.


Pricing and YieldsThe following chart shows you an example of some typical spreads of corporate bonds

over treasuries. (A/O 3/2006)

Rating 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 30 yrAaa/AAA 14 16 27 40 56 68 90

Aa1/AA+ 22 30 31 48 64 77 99

Aa2/AA 24 37 39 54 67 80 103

Aa3/AA- 25 39 40 58 71 81 109

A1/A+ 43 48 52 65 79 93 117

A2/A 46 51 54 67 81 95 121

A3/A- 50 54 57 72 84 98 124

Baa1/BBB+

62 72 80 92 121 141 170

Baa2/BBB 65 80 88 97 128 151 177

Baa3/BBB-

72 85 90 102 134 159 183

Ba1/BB+ 185 195 205 215 235 255 275

Ba2/BB 195 205 215 225 245 265 285

Ba3/BB- 205 215 225 235 255 275 295

B1/B+ 265 275 285 315 355 395 445

B2/B 275 285 295 325 365 405 455

B3/B- 285 295 305 335 375 415 465

Caa/CCC+ 450 460 470 495 505 515 545


The following graphs give you an idea of the yield of corporate bonds and treasury bonds a/o 3/01/2010

Us Treasury And Corporate Graphs


Yield Curves over 5years


Historically Corp. vs. Treasuries1. 10yr+ AAA bonds vs. Treasuries on average 90

basis pts over.

2. BBB bonds trade on average 210 basis pts over.


Govt. vs. Corp.


InterNote1. Registered brand name of Incapital LLC.

For debt issued using its underwriting and distribution platforms.

2. Created for smaller individuals(buy and hold).

3. Issued by both large and small corporations.

4. Most have a survivor option and noncallable.

5. Best used for buy and hold(laddering) strategies.

6. Internote dealers provide a secondary market.


Recap1. Most efficiently used by HNW investors in tax

deferred accts.

2. Fully taxed at all levels.

3. Understand the dynamics of the issue.

4. Know how it is priced over treasury bonds.

5. Check and see how the underlying stock price is performing.

6. Corporate bonds, not highly correlated to junk or treasury bonds- good diversification tool.


Recap

7. Treasury/corporate spd , shrinks or expands more on econ. Conditions then I.R. move.

8. Another avenue for the HNW investor to diversify their portfolio and create a dynamic and income producing portfolio.


CONTACT INFO

• Matt Kraus

• Managing Director

• Kruse Asset Management

• 312 627 0072

• [email protected]


Why owning treasuries can be very different this decade

Treasuries returned 13.7% and -3.6% in 2008 and 2009 respectively. With 61% foreign ownership you should carefully review your future decisions. The Federal

reserve printed record amounts of new debt during 2009. How will this impact your future returns? Pros and cons of treasury ownership discussion with Matt and I. Join

us.

https://www2.gotomeeting.com/register/469064539

(Apr 27th - 11 am Central)


Contact“Helping America one business, one non-profit and one family at a time“Amir Homayoun Rafizadeh, MBAManaging Director of Client EducationKruse Asset Management – [email protected]://www.linkedin.com/in/wadvisor

Matt KrausManaging Director of Fixed [email protected]://www.linkedin.com/in/krausm


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2010 Fixed Income March 23rd Corporate Bonds Webinar