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> Getting allocations of corporate bond deals is one of the easiest ways for managers to outperform benchmark bond indexes because they’re typically sold at a d

> Getting allocations of corporate bond deals is one of the easiest ways for managers to outperform benchmark bond indexes because they’re typically sold at a discount to market rates, according to Jason Shoup, the head of U.S. high-grade credit strategy at Citigroup Inc. The bonds aren’t added to the indexes investors are measured against until the end of each month. That can generate as much as 0.2 percentage point of additional gains for investors who get in early, Shoup said. If you ever wanted to know about the bond market there are two pieces of gold in the above lines. 1) Getting in on new issues is free money. Stocks are the same. Steve Cohen at SAC was famous for overpaying on commissions just to get the first call for new issues. When bond funds return 1.1% and beat the market having an additional 0.2% really puts you ahead of the competition to the tune of 18% in gains for free. 2) The fact that the gain is 0.2%, not 2% or 20%, 0.2%. Bonds are a volume game. You find an angle to make 0.2% and lever the hell out of it. Having said that, this is the playbook directly from LTCM.

whatok 11y ago
New issues are not always free money. Seen many deals over the past few years get torpedoed by pricing way too tight or complete garbage allocations. Even seeing some recent IG issues widening a decent amount soon after issuance.
larrys 11y ago
"Steve Cohen at SAC was famous for overpaying on commissions " After a real estate deal last year I bought the broker a gift and delivered it. He said "wow shouldn't I be buying you the gift?". No problem because the next time I was the person he called first when he got a fresh listing on a commercial investment property which I was able to buy at a much lower price per sf than if he had actually taken the effort to shop it around or keep the listing active. People respond amazing predictably even if they think of themselves as highly ethical. They tend to remember the people who treat them well and appreciate their efforts. In this context a small gift (what I am describing) also isn't necessarily a bribe. It is an "advertisement" that makes the person that you are giving the gift to remember you and to call you when they have "a good deal". It all depends on the relationship. It is often the case in business that instead of thinking solely about the costs (or commissions) that it definitely pays to be someone's good customer and allow them to make money from you.
- anigbrowl 11y ago
  Not to be critical of your business practice, but the broker's behavior seems to be on thin ethical ice here, since he had a fiduciary obligation to the client - his intentions may have been ethical but but he comes off as a little lazy/irresponsible for not getting the best price for his client. As you're obviously investing in real estate yourself, how do you balance the benefits of liquidity from a quick sale vs. those of maximizing the sale price by shopping around? Put another way, if you were the seller in that transaction, is the opportunity cost of waiting a bigger worry than getting the best price? Is it just the seller's responsibility to instruct the broker 'this is my liquidity goal, anything on the top is gravy' or 'take your time selling, I want to get the full value of this asset', depending on the seller's need? I'm not a business person/investor so I would like to understand your thought process better. Thank you. PS feel free to email.
  - forrestthewoods 11y ago
    No real estate broker gets the absolute best possible deal for a client. They get a small percentage of any deal. A slightly better deal might be worth thousands of dollars to the client but only a few hundred to the broker. It's not worth the broker's time to spend a full week looking for the absolute highest buyer. It's in the broker's interest to process more deals more quickly than to squeeze that last little bit out of every property. That's just the way it is.
    - anigbrowl 11y ago
      I'm not talking about the absolute best possible deal, I'm addressing larrys' observation that he picked up an investment property for significantly less than the broker could have sold it for if he shopped around. Fiduciary duties require brokers to act in the client's interest, not their own. This isn't something a broker can just blow off if a dispute arises, it's a legal obligation. That's why it's referred to as a duty. http://www.realtor.org/sites/default/files/handouts-and-brochures/2014/nar-fiduciary-duty-032213.pdf http://www.realtor.org/sites/default/files/handouts-and-broc...
notsony 11y ago
Bonds, billions, taxes, loopholes, Ireland, Dr Dre and BEATS, blah blah blah. Let's put this all into perspective shall we? Apple is drowning in cash yet takes a 30% cut from developers and charges developers $99 to join the iOS developer program. You also have to pay $99 to join the Mac developer program, even if you don't want to sell in the Mac App Store, because you need to codesign your application with an Apple certificate so that GateKeeper doesn't scare users away from your software. Yes, Apple, business, shareholders, not a charity, blah blah blah. So what happened to "THINK DIFFERENT"?
- serve_yay 11y ago
  HN, you are adorable sometimes.
sorbits 11y ago
> Bonds are a volume game. You find an angle to make 0.2% and lever the hell out of it. This would only work if they are able to borrow money cheaper than the bond markets on which they are buying debt, which would put them in the business of debt arbitrage. I don’t think this is the case, they are just parking their money in something better than a bank account.

whatok 11y ago

New issues are not always free money. Seen many deals over the past few years get torpedoed by pricing way too tight or complete garbage allocations. Even seeing some recent IG issues widening a decent amount soon after issuance.

larrys 11y ago

"Steve Cohen at SAC was famous for overpaying on commissions " After a real estate deal last year I bought the broker a gift and delivered it. He said "wow shouldn't I be buying you the gift?". No problem because the next time I was the person he called first when he got a fresh listing on a commercial investment property which I was able to buy at a much lower price per sf than if he had actually taken the effort to shop it around or keep the listing active. People respond amazing predictably even if they think of themselves as highly ethical. They tend to remember the people who treat them well and appreciate their efforts. In this context a small gift (what I am describing) also isn't necessarily a bribe. It is an "advertisement" that makes the person that you are giving the gift to remember you and to call you when they have "a good deal". It all depends on the relationship. It is often the case in business that instead of thinking solely about the costs (or commissions) that it definitely pays to be someone's good customer and allow them to make money from you.

anigbrowl 11y ago
Not to be critical of your business practice, but the broker's behavior seems to be on thin ethical ice here, since he had a fiduciary obligation to the client - his intentions may have been ethical but but he comes off as a little lazy/irresponsible for not getting the best price for his client. As you're obviously investing in real estate yourself, how do you balance the benefits of liquidity from a quick sale vs. those of maximizing the sale price by shopping around? Put another way, if you were the seller in that transaction, is the opportunity cost of waiting a bigger worry than getting the best price? Is it just the seller's responsibility to instruct the broker 'this is my liquidity goal, anything on the top is gravy' or 'take your time selling, I want to get the full value of this asset', depending on the seller's need? I'm not a business person/investor so I would like to understand your thought process better. Thank you. PS feel free to email.
- forrestthewoods 11y ago
  No real estate broker gets the absolute best possible deal for a client. They get a small percentage of any deal. A slightly better deal might be worth thousands of dollars to the client but only a few hundred to the broker. It's not worth the broker's time to spend a full week looking for the absolute highest buyer. It's in the broker's interest to process more deals more quickly than to squeeze that last little bit out of every property. That's just the way it is.
  - anigbrowl 11y ago
    I'm not talking about the absolute best possible deal, I'm addressing larrys' observation that he picked up an investment property for significantly less than the broker could have sold it for if he shopped around. Fiduciary duties require brokers to act in the client's interest, not their own. This isn't something a broker can just blow off if a dispute arises, it's a legal obligation. That's why it's referred to as a duty. http://www.realtor.org/sites/default/files/handouts-and-brochures/2014/nar-fiduciary-duty-032213.pdf http://www.realtor.org/sites/default/files/handouts-and-broc...

notsony 11y ago

Bonds, billions, taxes, loopholes, Ireland, Dr Dre and BEATS, blah blah blah. Let's put this all into perspective shall we? Apple is drowning in cash yet takes a 30% cut from developers and charges developers $99 to join the iOS developer program. You also have to pay $99 to join the Mac developer program, even if you don't want to sell in the Mac App Store, because you need to codesign your application with an Apple certificate so that GateKeeper doesn't scare users away from your software. Yes, Apple, business, shareholders, not a charity, blah blah blah. So what happened to "THINK DIFFERENT"?

serve_yay 11y ago
HN, you are adorable sometimes.

sorbits 11y ago

> Bonds are a volume game. You find an angle to make 0.2% and lever the hell out of it. This would only work if they are able to borrow money cheaper than the bond markets on which they are buying debt, which would put them in the business of debt arbitrage. I don’t think this is the case, they are just parking their money in something better than a bank account.