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Bargains for Individual Investors in Post-2008 Bond Markets?
Keywords: 5 words maximum
bond markets, spread, investor
Very short description for use in the program to help attendees understand more than a title can describe
Many individual investors hold individual bonds rather than bond funds. Post 2008, bond markets have become thin. While this may result in larger price swings, it levels the playing field between dealers and investors. In this paper, we document the opportunities for individual investors in corporate bond markets to buy bonds that are higher yielding by up to 1-2% than otherwise identical bonds. A 1% ytm discount translates into a 7% price discount for a 10-year maturity bond. We trace the source of this “bargain” to two factors: simple odd lot discounting and corporate structure after mergers. The risk to the investor is illiquidity.