Story Bond

Well, once upon a time, there was a castle loan in the kingdom of Yield. The princess wanted to pay only 5% a year to rent that money. She had found juuust the right castle she wanted to buy. She’d been cutting her hair for decades and selling it on cBay for the down payment. But then, one day, an ogre came by and took all of her money, her belongings, and her pink unicorn, and gave it all to the union elves.

So then the troll family who had loaned her the castle loans grew very nervous about collecting the debts she owed them, especially now that the ogre had taken her castle...and was kind of ruining it with the elves partying down way too hard.

The troll family bonds were backed by the value of the castle, and the family knew that. Even if the castle were completely ruined and turned to rubble, the lands around it were worth five times the bond’s principal.

So as the bond’s trading value had come down from its $1,000 par to being offered at only 600 bucks, investors who realized the great value of the pink unicorn breeding grounds around the castle wanted to buy the bond aggressively at these prices.

The brokers who wanted to sell the bond and make their nice commissions were only too happy to tell and retell this complex story. And, in fact, this is the genesis of a story bond.

That is, there is some explanation as to why the bond is trading at some meaningful discount or premium to where it was originally offered that is not explainable by normal market conditions, like Fed fund rates changing, or inflation moving, or other broad-based global debt phenomena that would raise or lower the tides, bringing up or down all boats.

And that’s a story bond. It’s a bond that has such a complicated, random, bizarre history behind it that investors need to have an endlessly long, painful story told to them before they feel comfortable enough to risk their money on that bond...and still be able to sleep at night.