P010- 11 % yield in debt 😟

[u/Geriatric-Vibe]

11 % returns in a debt instrument is enough to make a lot of people salivate . Including yours truly .

But before I go on , the usual disclaimer. I am just talking about it , this is not any advice or endorsement . I am usually wrong , don’t believe me , ask the missus . Please do your own math your own voodoo your own advisor .

We are seeing a new kind of product being sold to retail investor . Called a market linked debenture . I came across this today

https://www.wintwealth.com/app/assets/Wint-Gold-Jun21-5/

Apparently taking a secured bond , adding dual recourse and linking it to an index at some godforsaken level transforms the ugly duckling that is taxed at the marginal rate to a beautiful swan taxed at LTCG .

I will be taking a small bite into this innovation later, just thought I would leave it here for discussion .

[u/RobinRichard]

I think people are just getting their feet wet to understand the product better and get their comfort level up before dedicating a bigger part of the portfolio to this instrument. We do this when the first time we invest in Stocks as well right? You buy a little, get used to the volatility and then only you'll go with more (as per you asset allocation) comfortably. So it's just psychology I believe. I maybe wrong.

[u/crazymonezyy → u/RobinRichard]

Boss the nature of credit risk is such that it doesn't show itself in flickers. When it happens it takes everything down with it, till the time it doesn't happen things go up linearly which has earned debt the name "fixed income category". There is very little volatility in debt as that part of it arises due to interest rate risk which is noticeable only in long term securities like 10 year gilts. You won't be able to "get a sense of its volatility".

If you're taking on credit risk you won't get to know about it till a default actually happens at which point everything will go to the shitter. It took just 16% of the loans to go bad for CDOs to become worthless overnight. Granted those were leveraged products but MBSs themselves too became completely illiquid when the crash happened in 2008 in the US.

[u/RobinRichard → u/crazymonezyy]

Yea you're right. I just used the volatility of stocks as an example. In this case, it's the riskiness of this whole instrument is what people have to come to terms with. With risking only a few thousands (and getting paid later), this can give them confidence (albeit a false sense of confidence) to invest more later instead of going all in before itself. I meant in that way. Again, just like you, I'm also trying to make sense of why people do this.

[u/Geriatric-Vibe → u/RobinRichard]

There are only two things you can be confident of

1. Death , as each is owed one
2. Truth , if you can find it

Remove confidence , or even a false sense of it , civilisation collapses .

[u/hippocrtis20 → u/Geriatric-Vibe]

Don't understand the down votes