Word is bond

Sacha Peter has been doing a little investing in fixed-income securities, more specifically trust preferreds (and a further entry on trusts versus bonds here). It’s an interesting area but for me, the liquidity is definitely an issue — Sacha does seem to prefer less generally well-understood areas which often tend to come with a lack of liquidity. I was reminded of these retail products when I read this article on small GM bondholders (unfortunately, I know some people who were put into them as recently as late last year, when some brokers perceived it as a fire sale on blue chip bonds). The article notes that some retail investors are doing short-term trading with securities that sound like these trust preferreds, which tend to have been issued by various investment banks, from what I’ve seen. I’m not sure if they are the same thing, but I suspect they are.

Other individual GM bond investors are playing the vulture game with the Wall Street pros, trying to benefit from temporary increases in bond prices. That is easier to do with GM because the company has “retail bonds,” which have a face value of only $25, and thus are more affordable and liquid than regular bonds, whose face value is $1,000. The GM retail bonds now trade for $2 to $4 each.

David Berger, 36, a Manhattan commercial real-estate broker, says he has made money over the past few months trading in and out of these securities. In March, he had a stake totaling $500,000. Because he has bought so low, they offer a 80% yield. “It’s nice to ride the wave,” he says.

Hmm, the “more liquid” part makes me wonder if these are the same type of securities. Sounds a little like this Berger guy is playing a nice game of chicken.