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Ford Motor Credit Bond
Originally Issued: 12-7-2009 Matures: 01/15/2020
Yield at Issuance: 8.38% Price at Issuance: $98.30
CUSIP: 345397VM2 Amount Outstanding: $1.25 billion
This bond was priced at $128.95 on May 1st (3.27% yield-to-maturity) but by July 31st it had dropped by almost 5% to $122.68 (4.09% yield-to-maturity) with most of the decline taking place in June.
In digging into the June numbers, I expected to see large amounts of this bond being dumped on the market, driving the price down as investors were supposedly running from bonds as fast as they could. That’s not what I found.
For the month of June, the average daily amount of trading in this bond as shown as a percentage of the total outstanding amount was 0.31%. This ranged from a low of 0.03% on June 17th (average price that day: $124.74) to a high of 0.97% on June 13th (average price that day: $124.36)[1]
To phrase it differently, everyday in June an average of 99.69% of holders of this bond decided to not to sell.
Maybe they don’t want to sell because they feel this bond is just as good as any other bond.
Maybe they don’t want to sell because they bought it closer to the initial offer price and they’re happy earning an 8% annual yield.
Maybe they just don’t need to money right now.
Who knows.
What I do know is bond holders, much like homeowners, are more inclined to sell when they either have a change in their situation (job change, bigger family, cut in pay, etc.) or they feel there is distinct and quantifiable advantage to switching (this company / neighborhood is declining while that company /neighborhood is improving). Without an incentive to move, inertia takes over and bond holders as well as homeowners tend to stay put.
I’m curious to see if activity picks up when July’s performance numbers are released.[1] Source: Finra.org
