Better Bond Ladder
Many investors tell us they own a Bond Ladder
which is a very intuitive and visual concept. The problem for investors over the past 12 years is the low-interest rates especially in the short portion of the interest rate curve. Why hold up large portions of your capital in the 1-5 year maturity of the curve earning next to nothing?
In addition, many investors tell us their Financial Advisor structured a bond ladder for them in a tone like the FA shared the process of splitting the atom. Well, how convenient and simple for the Financial Advisor; we would not want him/her/birthing person to think or work too hard. Once a year, he/she/birthing person has to find a bond on the upper rung of the ladder to reinvest the proceeds of the maturing bond.
With our active management, we will look to sell your bond when it has 2-3 years left until a call or maturity. Anybody can let a bond mature; it’s easy and requires no work until it is time to reinvest. On the other hand, we will offer your bond at a high retail price on an electronic platform where thousands of potential buyers will see it. If no one lifts our offering on your bonds, we will take down the offer and then put the bond out to bid. There may be someone out there crazy enough to pay retail for your bonds. Both offering a bond and putting bonds out for a bid are structurally impossible at a brokerage firm. When we succeed in selling your bond at a retail price, we will then go back out to reinvest your bond proceeds at wholesale pricing in the sweeter part of the curve.
The result of selling to the client can be an extra point or two on the sale of the bond. 2 points on $1,000,000 is an additional $20,000 of capital to be deployed or reinvested into the sweeter part of the curve. Plus, do not forget the additional yield achieved. In December 2020, partner Jeff Watkinson examined the disruptive business model of Carvana and of Watkinson Capital.