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A New Way to Invest In Goldman Sachs

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October 26, 2010 – Comments (5) | RELATED TICKERS: GS

Goldman Sachs (GS) made news today by issuing $1.3 billion of 50-year bonds with a coupon rate of 6-1/8 %.  WSJ article link.  The issue was targeted to allow individual investors to participate with a minimum purchase of $25. 

Before rushing out to try buy these out on the open market, be aware the bonds are callable after five years.  What that means is that if interest rates ramp up over the next few years, investors will be left holding a low-coupon bond for most or the rest of their life or faced with the prospect of selling the bonds at a discount to face value.  If rates were to fall below today's ridiculously low rates, Goldman gets to buy the bonds back at face value after five years.

I wasn't able to find a quote on these to find out whether they're trading up or down after issue.

Curious if any Fools bought some of these.  If you did, please weigh in with a comment.

Sidebar:  In the unlikely event anyone has missed me on the blogs or Fool writing,  it's due to the early birthday present I got earlier this month - a brand new Zimmer (ZMH) left hip to replace the arthritic original equipment.  I'm about half-way through recovery/rehab and all is going well.  I hope to be back to writing and more blogging soon.

5 Comments – Post Your Own

#1) On October 26, 2010 at 5:31 PM, mtf00l (43.58) wrote:

Welcome back!  Get well soon!

GS will win no mater who wins and no matter who loses.  If the bonds lose GS money I'm sure they have "insurance" against the loss! =)

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#2) On October 26, 2010 at 5:33 PM, mtf00l (43.58) wrote:

Sorry for the double post, however, remember GS has insiders at the Treasury and the Fed.  So, their upside is known to them, their down side is known to them.

Everyone else has no idea what the game is.

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#3) On October 26, 2010 at 6:34 PM, MegaEurope (24.98) wrote:

Congrats on your new hip.

Did you see the news about the rate on TIPS going negative?  Another aspect of extreme bond-market enthusiasm (in this case, combined with inflation-trade enthusiasm).

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#4) On October 26, 2010 at 10:07 PM, rd80 (98.66) wrote:

Thanks for the comments.

@mtf001 - I think this bond issue could be considered relatively cheap insurance for GS.  If rates stay in the cellar, it pays a bit of a yield premium and can call the bonds after five years.  If rates jump, it locked in long term capital at what could look like pretty attractive rates in a few years.

@MegaEurope - I did see the new on the negative TIPS auction.  Makes no sense to me, but like you say - bond euphoria combined with fear of inflation.  I don't understand the market bidding up bond prices / bidding down rates.  I'm in the bond bubble camp, but also recognize bubbles can keep bubbling for a long time.

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#5) On October 30, 2010 at 9:54 PM, anchak (99.86) wrote:

Rd.....All the best in your path to recovery!

 

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