Don't Throw AT&T's Baby Bonds Out With The Bathwater


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An introduction to baby bonds

Baby bonds - smaller bond issues that appeal to retail investors - are an important tool for smaller investors to get exposure to fixed-income investments. Indeed, I’ve recommended several of these in the past couple of years from high-quality issuers specifically for that reason; larger bond issues are generally illiquid, and par is typically at least $1,000. Baby bonds provide investors the chance to buy exposure to fixed-income issues for $25 and with very reasonable bid/ask spreads. Thus, I’ve grown to like them quite a bit.

A different point of view

Last week, a fellow author published a piece on AT&T’s (NYSE:T) newest baby bond, TBB. The author disparaged the issue for a couple of reasons, but I’d like to respectfully disagree. Specifically, he says that the maturity is too long, and that the five-year call option on TBB means that you and I are at a disadvantage when it comes to owning baby bonds, and thus, TBB should be avoided. However, I believe these criticisms are missing the point of TBB and issues like it, and can easily be overcome with a diminutive amount of investor education.


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