My Build America Bond pitch

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rankstocks's picture
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Joined: 2005-02-10

I got a great PM that asked about my BAB's pitch to prospects or clients that only have a few assets and not a great relationship yet.  I've refined my pitch over the years.  Let's see if you like it......

I've got a beautiful city of Miami, Florida rate paying 7%.  Right now taxable municipal rates are paying significantly higher yields than corporates, even though history has shown that corporates are around 10 times more likely to default.  Because of their relative safety and higher yields, let's take a portion of your safe money making 1-2% at the bank and give you a huge pay raise.  If I can show you 7%, and that's your worst investment over the next 5-10 years, what would stop you from sampling me out on 50-100k?
 
Client: I'm too old.
Response: How old is too old for a pay raise?
 
Client: How long are these?
Response: You can sell these any business day at their current price, but the city of Miami can't take these away from you for 5 years.  Hopefully you'll be able to hang on to them up to 20 years, but there is a good possibility this money may come back sooner.
 
Client: How safe are these? 
Response: Good question.  Municipals rated A have around 15 times less defaults risk than comparable A-rated corporates.  If you look back in history, only 0.3% of A-rated municipals have defaulted over the last 50 years.  And for those that did default, your average recovery has been 70% of your money back, that's why I'm recommending you sample me out with around 50 thousand.
 
Client: What about inflation on these long rates?
Response: always keep a nice portion of your money short term.  However, 1-2% isn't going to help you achieve your retirement goals.  Inflation is a risk, but one we are not too concerned about right now.  Another risk you really need to think about is purchasing power risk.  How much do you think a candy bar is going to cost in 10 years?  That's why with a portion of your money you need to ladder longer term.
 
Client: I'm too busy.
Response: That's okay,  write the check and I'll take care of it.
 
Client: I'm not interested.
Response: Is it my timing, or are you not looking for rates right now?  What is it about a pay raise that concerns you?  You work at Pepsi don't you?  When was the last time you turned down a pay raise there?  Why turn one down from me?
 
I'd be curious if anyone had some good responses to these objections that you like better.

voltmoie's picture
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Joined: 2008-11-05

Rank,  Are these calls to prospects or current clients?I do like the pay raise line but to be honest I'm not sold on BABs just yet unless it's qualified money. Just typically tell the client "I've got a great, safe investment for your IRA .. I like to call them IRA bonds and they are paying %%%"   ... When is the last time you got 7% in your IRA?

BondGuy's picture
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Joined: 2006-09-21

Ranks, good stuff! I like what you've posted. You've covered the hot buttons of fear and greed. Which is what we need to compel reluctant investors to act.
 
Possbly those critical of your pitch could post their own?
 
 
here's a sample of some of what i say. Quite frankly i've broken my own rules wit regard to BABs and don't have a written pitch. I should. Also, most of those that i'm pitching to are long time clients and that pitch goes something like this:
 
Me: I have have a great bond for you today or i have an exceprtional opportunity for you today.
 
Client: what is it?
 
Me: it's something called a build america bond and it yields 7%.
 
Client: Sounds good, how many should i buy?
 
So it goes when you have a long term book.
 
 
 
The following is a combination of some of the things i say when forced to "pitch"
 
 
Mr. client I'm calling you today to tell you about a brand new type of investment called a Build America Bond. Are you familiar with these? No doubt you're familiar with the economic stimuous package the government has put into action and part of that package is putting people back to work building schools, highways and all sorts of infrastructure projects. Cities, towns, counties, states across the country are using this program building the projects that they need. These bonds are issued to pay for those projects. The federal government is subsidizing the payment of interest on these bonds making them very safe. And here's the best part, they are paying over 7%!
 
Right now you are getting what, 1% in your money market? Until now, with the economy the way it is, I wasn't comfortable showing you alternatives to the money market, however the build america program has changed that.  They are very safe. Today i have an XYZ turnpike bond yielding over 7% to available. it's a Build America bond and will be used to widen the turnpike between exits 6 and 8. it's rated double A plus and will come due in about 20 years in May of 2029. It will pay you $7000 a year in interest and is priced at a slight discount to give you a yield of 7.12%. What i'm recommending is that we start with $100,000, buy 100 of these bonds, and then go from there. This will put that money back to work for you rather than letting it sit on the sidelines. How's that sound to you?
 
A heavier close and more bullet points employed to B clients or prospects.
 

hotair1's picture
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Joined: 2009-03-12

I know that's just your script but are seriously finding 7% bonds selling at a discount? The Jones inventory has none of that and only one over 7% that is in CA right now.

BondGuy's picture
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Joined: 2006-09-21

hotair1 wrote:I know that's just your script but are seriously finding 7% bonds selling at a discount? The Jones inventory has none of that and only one over 7% that is in CA right now.
 
The script is the point, not what the bonds are paying.
 
That said, today 7% plus in Arizona and california. Last week i had 7% plus in NJ and Indiana or Michigan.
 
The bonds are out there and even if they aren't sevens, so what? BABs are a high yield new product. Be the first one on your block to tell your clients about them. I guarantee, if you don't tell them either I or one of my peers will. You don't want that to happen.

Spaceman Spiff's picture
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Joined: 2006-08-08

hotair1 wrote:I know that's just your script but are seriously finding 7% bonds selling at a discount? The Jones inventory has none of that and only one over 7% that is in CA right now.
 
They're talking about BABs (Build America Bonds) which aren't state specific because they are taxable munis.  There are several selling just over par, but not at 7%.  VK has a BAB UIT out there yielding close to 6%.  Their brochure on it does a great job of explaining BABs if you have someone who wants to know the details. 

SometimesNowhere's picture
Joined: 2008-12-22

Rankstocks, Bondguy...great stuff.
 
It's not much, but I used a hybrid of the stuff posted and just sold $50k to a guy that has been on the fence for a couple weeks.
 
And who says reading this forum all day doesn't pay off!

rankstocks's picture
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Joined: 2005-02-10

Good work Sometimes.
I've seen plenty above 7% in Jones' inventory.  Last week sold 100k of the Miami, Fl bond mentioned above.  Just keep your eyes peeled in the INV,TAXABLEMBD inventory.

Mike Damone's picture
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Joined: 2004-12-01

Is 2 points a reasonable mark up or is that getting tacky?

BondGuy's picture
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Joined: 2006-09-21

Mike Damone wrote:
Is 2 points a reasonable mark up or is that getting tacky?
 
Perfectly acceptable! The client is going to own the bond for a long, long time. Even OK to take more as long as the yield stays competitive. If your traders are doing their jobs that shouldn't be a problem. What you don't want is a situation where the client goes to the internet and sees the same bond trading cheaper than the level you sold it to them for. A little difference probably won't matter, but a big dif and you've got some splainin' to do.
 

BondGuy's picture
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Joined: 2006-09-21

On the other hand if you are going for a new account there is nothing wrong with chopping the commish and giving the prospect the deal of of the decade. I do that on a regular basis working for as little as zero. Not a popular option with the suits but a real crowd pleaser in the new account deparment. This will help build a relationship with plenty of money to be made over the years.
 
One caveat: only chop with experienced bond buyers or in a competitive situation. Doing so in other situations is just giving the money away as the prospect/client has no concept of the great deal they are getting.

Squash1's picture
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Joined: 2008-11-19

With regards to insured municipals, would it be illogical to think that they would appreciate as the insurer rating's increase?

noggin's picture
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Joined: 2004-11-30

I have to say if you don't listen to Bondguy on fixed income you are making a serious mistake.  He should have his own topic.....

BondGuy's picture
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Joined: 2006-09-21

Squash1 wrote:With regards to insured municipals, would it be illogical to think that they would appreciate as the insurer rating's increase?
 
That would not be illogical, however unlikely at this point. AMBAC just got whacked this week with much lower ratings. They are now trading with a junk rating. Who's next?
 
That said, insured munis are trading, in many cases, at depressed levels. That leaves lots of room for appreciation as the bonds move closer to maturity. Insured bonds with decent underlying ratings or from good issuers are the ugly girls at the dance right now. You know, the ones who are drop dead gorgous at their ten year reunions. That's opportunity if you know where to look.

BondGuy's picture
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Joined: 2006-09-21

noggin wrote:I have to say if you don't listen to Bondguy on fixed income you are making a serious mistake.  He should have his own topic.....
 
THX noggin! However, I have no special knowledge. I'm just an old guy who's been around the block a time or two. But again, THX!

chief123's picture
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Joined: 2008-10-28

Novice question regarding municipals.. Why would a bond that was rated BBB go to NR? It's insured by AMBAC is it possible the issuer didn't feel the need to pay for the rating anymore?

Squash1's picture
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Joined: 2008-11-19

Because AMBAC fell to CC. So now

"Meanwhile, the rating agency posted on its Web site more than 26,000 Ambac-insured muni issues whose ratings were largely changed to 'not rated' from Ambac's previous rating of BBB because they lacked underlying S&P ratings.

The rating agency said on Tuesday it would rate Ambac-insured issues with the issuers' underlying S&P ratings if they are above CC."

http://www.forbes.com/feeds/afx/2009/07/30/afx6722952.html

Squash1's picture
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Joined: 2008-11-19

Ok bond guy... what does this mean for muni's that are insured by AMBAC? It looks like the majority of the problem is in CDOs and not muni's for ambac, but if they keep losing money like this.. what happens?

I have sold some ambac insured muni's(Mass St port auth, Rhode Island Student Loan)

madpablito's picture
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Joined: 2009-08-02

Great pitch! will use it today!

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