Baby bonds are a type of bond debt that are issued in amounts smaller than $1,000. This means that you can buy them for less money than regular bonds. Corporate baby bonds are similar to regular bonds but are traded on stock exchanges in smaller amounts. This makes it easier for smaller investors to buy and sell them. However, sometimes they can still be complicated to understand and trade.
Anyone can buy tradeable baby bonds, but some companies might have different rules about how much money you need to have to buy them. Most baby bonds cost at least $1,000 or less, but some cost even less, like Aegon Funding Company LLC’s baby bonds which cost $25 and last for 30 years.
Baby bonds are like other types of bonds because they have people who give money (investors) and people who get money (issuers). But baby bonds are smaller and usually cost $25 or $50. They are sold to investors by companies or towns using investment banks.
You can buy baby bonds from a brokerage firm or the issuer. Baby bonds are often callable, which means that the issuer can pay you back your money and interest before the bond is finished. This is important to remember if you want to get all the interest you’re supposed to.
Baby bonds are cheaper than other bonds, which means you can buy them for less money. They can also be good if you want to have different types of investments and make more money.
But there are some risks, like it might be hard to sell the bond if you need your money back, and if the company that sold you the bond goes bankrupt, you could lose your money. It’s important to look carefully at the terms of the baby bond before you buy it, including how safe the company is and when the bond ends.
The Best Baby Bonds for 2019
Global Ship Lease 8% Senior Notes Maturing 12/31/2024
Global Ship Lease, Inc. (GSL) is a company that leases containerships. They have a publicly traded baby bond called GSLD that you can buy for $25.83. If you buy now, you can make 7.1% return by December 31, 2024.
GSLD can be called at $25.50, but you would get 30-days notice if this happens. This means there is no risk of losing money if GSLD is called. GSL is profitable and analysts expect them to continue earning a lot of money. The bond is safe and offers a generous yield, making it a good option to consider.
B. Riley Financial, 6.75% Senior Notes Due 5/31/2024
B. Riley Financial (RILY) is a really good company that has done better than other investment banks in the last 10 years. In 2021, it earned more than $15.00 for each share and paid out $10.00 in dividends. It also has almost $10.00 per share in cash and owns stock in other companies.
RILY has a bond called RILYO that pays 6.3% interest and is due on May 31, 2024. The bond is a good place to keep your money because RILY is a good company and the bond will mature soon.
The bond can be “called” (repaid early) if RILY wants to, but this is not very likely because the interest rates have changed. RILY has a different bond called RILYZ that has a higher yield, so it wouldn’t make sense for them to create a new bond just to pay off RILYO.
Great Ajax Corp. 7.25% Convertible Senior Notes Due 4/30/2024
Great Ajax Corp. is a company that invests in mortgages. They have a bond that will be paid back in two years and has a high interest rate of 8.1%. The bond can’t be cancelled, which means it can only be converted into common stock if the price of the common stock goes up to $18.81 per share. It’s unlikely that this will happen, so it’s not a good idea to count on it.
The bond used to be worth more 6 months ago, but now it has a much higher interest rate. This is because AJX is good at buying mortgages that they think will be paid back. They also buy mortgages that weren’t being paid before but are now. These are cheaper and can make them more money if they start being paid back again.
Higher house prices are good for AJX because they can take back homes if someone doesn’t pay their mortgage. They also have some money saved up and some other things that protect the bond from losing too much value.
Overall, the bond is a good deal because it has a high interest rate and can’t be cancelled, but it’s a bit risky because AJX invests in mortgages that might not be paid back.
Currently, interest rates are rising rapidly, leading to significant price drops in preferred stocks and baby bonds. If this trend continues, preferred stock prices may decline even further, resulting in substantial losses.
Long-term bonds may remain at lower prices for extended periods or even decline further. Investing in short-term bonds can prevent your portfolio from decreasing in value. Additionally, purchasing a short-term baby bond guarantees a fixed total return, which is often underappreciated by investors.
Investors have been accustomed to a decades-long fixed-income bull market, where every dip presented a buying opportunity. However, why take the risk of losing a significant portion of your portfolio’s value when you can secure a high yield from a two-year bond?
For those seeking safety and avoiding the potential losses of a bear market in fixed-income securities, we recommend three baby bonds maturing in 2024: GSLD, RILYO, and AJXA. These bonds offer excellent value and high yields relative to their safety and duration, with YTMs of 7.1%, 6.3%, and 8.1%, respectively.