In today's financial landscape, the bond market offers substantial income potential. According to Rick Rieder, BlackRock’s chief investment officer for global fixed income, longer-dated corporate bonds present both solid yields and attractive bargains. These securities, particularly those maturing between 20 to 40 years, offer significant value as they trade at a discount while providing stable returns. Additionally, the supply of long-term bonds remains limited, creating an opportunity for investors seeking higher yields. Despite concerns about interest rate sensitivity, these bonds continue to attract institutional buyers like pension funds and life insurance companies. Meanwhile, Rieder’s iShares Flexible Income Active ETF (BINC) has strategically positioned itself by focusing on quality assets with shorter maturities, while selectively incorporating longer-dated corporates.
The Value Proposition of Long-Term Corporate Bonds
Longer-dated corporate bonds have emerged as a lucrative option for investors looking for both yield and value. These bonds, which typically mature over two to four decades, offer competitive returns despite trading at discounted prices. The current market dynamics favor these securities, especially since many investment-grade corporates are trading below par value. This creates an opportunity for investors to lock in yields ranging from 5% to 6%, which is particularly appealing given the broader market conditions. Moreover, the limited supply of long-term bonds adds to their attractiveness, as institutions such as pension funds and insurance companies remain key buyers in this segment.
Rieder emphasizes that the sweet spot lies in bonds issued by well-established companies like Amazon and Apple, which have demonstrated strong creditworthiness. While these bonds may be more sensitive to interest rate fluctuations, their discounted trading prices make them an attractive buy. The January consumer price index reading, which came in higher than expected, has raised concerns about inflation, but Rieder believes that the Federal Reserve’s cautious approach will not significantly impact the long-term bond market. In fact, he argues that the relative scarcity of long-term bonds makes them a compelling investment choice for those willing to take on moderate risk.
A Balanced Portfolio Strategy for Sustainable Returns
BINC has adopted a balanced approach to its portfolio, focusing on high-quality assets while minimizing exposure to long-term interest rate risks. The fund primarily invests in debt with maturities between zero and five years, with particular emphasis on two- and three-year bonds. This strategy allows BINC to capitalize on short-term opportunities while maintaining liquidity. High-yield bonds and loans account for nearly 41% of the fund, reflecting a strategic allocation toward sectors that offer higher returns without excessive risk. European and British assets comprise approximately 18% of the portfolio, while U.S. assets make up around 23%. Rieder favors BB-rated high-yield bonds in Europe and B-rated bonds in the U.S., citing the strong credit quality of companies in these regions.
Securitized products form the second-largest portion of BINC’s portfolio, representing just under 37%. Among these, collateralized loan obligations (CLOs) constitute 11%, commercial mortgage-backed securities (CMBS) account for 10%, non-agency mortgage-backed securities (MBS) make up about 10%, and asset-backed securities (ABS) contribute 5.5%. Rieder highlights the CLO market’s underdevelopment, noting that even triple-A rated securities can be acquired at attractive valuations. The CMBS market, though affected by concerns over office real estate, presents opportunities in fully leased Class A properties. Overall, BINC’s diversified approach ensures sustainable returns while mitigating risks associated with long-term interest rates.
The city of Jonesboro has made significant strides in securing financing for its ambitious Sports Complex project. After two crucial meetings held by the A&P Commission and the Jonesboro Public Facilities Board, a financial structure was approved that will facilitate the construction and operation of the facility. The plan involves issuing lease revenue bonds through a private placement with Capital One, ensuring favorable terms and lower interest rates. Additionally, the city has already invested $8.5 million over three years, reducing the total borrowing amount and accelerating repayment timelines.
Securing Financial Structures and Partnerships
The approval process involved meticulous planning and collaboration between various stakeholders. The A&P Commission will oversee the construction phase, while the Facilities Board will manage operations post-completion. The bond issuance is structured as a private placement, offering a tax-exempt interest rate and lower financing costs. Capital One emerged as the preferred lender due to its flexibility and competitive terms. This arrangement allows for prepayment options and ensures that any unused funds can be reallocated efficiently.
To ensure transparency and optimal financial management, the Facilities Board will use the rent paid by the Commission to repay the bonds. The projected repayment period ranges from 21 to 23 years, depending on the borrowed amount and prevailing interest rates. The city's prepared food tax collections since 2022 have significantly reduced the need for full borrowing, with $8.5 million already allocated towards land acquisition and architectural fees. This strategic foresight enables quicker repayment and reduces overall interest costs. The resolution also sets a principal borrowing limit of $70 million, providing a buffer for unforeseen expenses.
Selecting Appraisers and Trustees
In preparation for the complex's operational phase, the Facilities Board carefully evaluated potential appraisers and trustees. Colliers International was selected as the appraiser for its cost-effective services and efficient turnaround time. The choice of Centennial Bank as the bond trustee was driven by its competitive annual fees, with Regions Bank serving as a backup. These selections underscore the board's commitment to prudent financial management and cost-effectiveness.
The appraisal services are crucial for determining the fair market value of rent for the Sports Complex, ensuring that the leasing agreement aligns with market standards. Colliers' estimated cost of $8,500 and a three-week completion timeline were deemed optimal compared to other proposals. Similarly, selecting Centennial Bank as the bond trustee reflects the board's focus on minimizing operational costs without compromising quality. The preliminary resolution paves the way for final negotiations, with an aim to lock in interest rates by early March. The bonds, designated as Jonesboro Sports Complex Project Series 2025, will cover design, construction, equipment, debt service reserve, and issuance costs. The maximum term for these bonds is set at 30 years, though efforts are being made to keep it within 20 to 24 years.
Two young freshmen, Veronica and Bill, met by chance during their first semester at Virginia Commonwealth University. Their shared major in health-related fields brought them together for nearly all of their classes. What started as casual conversations between classmates blossomed into a deep friendship and eventually love. Despite the lack of modern communication tools like cell phones, they spent countless hours talking on landlines or face-to-face. Over time, their bond grew stronger, leading to a lifetime commitment that has lasted for over three decades.
The Spark of Friendship
Veronica and Bill’s story began with a series of coincidences. Both pursuing health-related majors, they found themselves sharing almost every class during their freshman year. Bill often chose to sit behind Veronica, using homework questions as an excuse to engage in conversation. These interactions gradually turned into genuine discussions about their lives and interests. The absence of smartphones meant they relied on landline calls, which often stretched late into the night. This constant communication helped solidify their friendship, laying the foundation for something more profound.
As the weeks passed, Bill and Veronica’s relationship evolved from mere acquaintances to close friends. They would meet after classes to walk together down Franklin Street, where Bill lived and Veronica worked. One evening, they decided to watch a free movie at The Commons, grabbing pizza beforehand. This casual outing marked a turning point in their relationship. Soon, they were making room for each other in their daily routines, considering each other’s opinions on important decisions. Friends and family began to notice how inseparable they had become, signaling the depth of their connection.
A Lifetime Commitment
Their bond deepened further as they continued to spend more time together. Veronica, noticing a potential rival in Bill’s lab partner, took action by ordering a vanity plate that read “BLS GRL,” symbolizing her claim on Bill. This small gesture became a lasting testament to their relationship. By the next fall, they were engaged and moved into an apartment together. VCU remained a significant part of their lives, supporting them through various milestones. Today, they celebrate anniversaries at basketball tournaments and continue to cherish the university that brought them together.
Nearly 35 years later, Veronica and Bill remain devoted to each other and to VCU. Their oldest child, Adam, is now a freshman at the same university, continuing the family tradition. As he walks to class, he passes a brick on the Shafer Court pathway, inscribed with “Where it Began | The Gaballahs.” This serves as a daily reminder of the impact VCU has had on their family, from the moment they met as 17-year-olds to raising three children and celebrating over three decades of marriage.