We like to keep an eye on Yankee bonds. In fact, an Argentine Yankee bond I recommended in 2003 was one of our best performing investments ever. And earlier this week, I tipped another Yankee bond, this time from Canada.

A Yankee bond is one issued by a foreign company in US dollars in the US market. It must be registered with the Securities and Exchange Commission, which can take about 3 months. It may also be rated by US agencies. Canada counts as a foreign country. Most Yankee bonds come from companies which already have a US stock, and many of them from banks rather than industrial firms. US companies meanwhile can issue euro bonds on foreign markets. These have cute names like Samurai (in Japan) or Matilda (in Australia).

For US investors, the appeal of a Yankee bond is that there is no exchange risk: the bond is issued and pays out in US dollars. In general, Yankee bonds pay out higher interest rates than strictly domestic corporate borrowers because they are less well-known. 

During periods when US interest rates are very low, like the present, there are a lot of Yankee bonds issued. But because of the cost of compliance, many borrowers prefer raising US dollars on the Euromarket. US investors may not buy Eurobonds at issue unless they are qualified institutions, but retail investors can buy seasoned issues on the secondary market. Like most US bonds they pay interest twice a year. In dollars. Subject to US taxes.

In a period of desperate search for yield, some investors are looking at exotic lower-rated Yankee bonds, some of which are convertible into shares. Exotic Yankees are a specialty of Tigard (Oregon)-based Durig Capital which comes up with some convertible Yankee bonds. It apparently sells from its own holdings. These are often small issues and hard to buy except from Durig itself or its clients.

Be afraid. Be very afraid.

A recent recommendation in this area from Durig was Neo Materials Technologies' 5% convertible unsecured subordinated bonds maturing Dec. 31, 2017. There are $230 mn in bonds out from the Canadian rare earth powder producer which came out in June, 2011, when we were NEMPF shareholders.

If bought from Durig at $93.5 per $100 face value when recommended this January, the bond would produce a yield to maturity of 6.3%. It allegedly can be converted into common stock upon maturity, at $13.80/sh (paying 72.4638 per US$1000 bond).

Unfortunately, what Durig failed to mention is that NEMPF (whose common shares we used to recommend) was taken over by Molycorp in mid-2012 (a half-year before the bond was tipped) and the conversion would be into MCP, at 0.122 MCP shares per Neo share. When the takeover took place, MCP was at $25; now it is around $4.70, so the conversion option is worthless.

Durig selected another convertible bond this year, Canada's Brigus Gold's 6.5% of Mar. 31, 2016 (cusip 109490AA0, BRD.DB.U) with a yield to maturity pegged at 14.38% if bought at $84.45 on Nov. 30. It trades at $80 today and according to Dow Jones was at that price Nov. 30. So somebody made $4.45 when people sprang for the Durig idea.

Durig also covers higher-yield Yankee bonds, often with short remaining tenure. An example might be Petroleos de Venezuela SA (PDVSA) 4.9% short term bonds which the service tipped for an 11.43% yield to maturity upon the death of Hugo Chavez. It later tipped another PDVSA issue with longer to run, the XSO294103 with a coupon of 5.25% coming due April 12, 2017. PDVSA bonds have suffered a rout from excessive borrowing including a $4.5 bn issue last month plus "friendly" private loans from China and Russia.

Another exotic was Russia's NordGold 6.375% Yankee due May 7, 2018 with 52 months to run, cusip N64523AA6 when traded at 92.25% of par. It would have a yield to maturity (YTM) of c8.4% based on its August offer price of $92.25 if it doesn't default. NordGold is a heavy borrower. It was also written up twice. This is a London-listed Russian gold miner which expanded rapidly and is suffering from the collapse of the gold price.

A current Durig advisory tips the Camposol S.A. 9.875% Yankee of Feb. 2, 2017 (cusip P19189AA0) from a Peruvian asparagus and avocado grower, incorporated in Cyprus, and primarily listed in Norway. At 104% of par, it is B rated by S&P and the issue was $125 mn callable at a premium. It has 38 months to go and the service doesn't give its cusip or yield to maturity. Its current yield is c8.45% Durig says. Camposol is growing beautifully and its sales and earning are excellent.

But again there is a fly in the ointment: its shares have been taken over by Spain's Dyer Coriat Holdings SI via a takeover bid in Oslo in October. Dyer in another recent takeover of Peruvian fisheries turned out to be acting on behalf of China.

Another tip was for Argentina's Transportadora del Gas del Sur SA, 7.875s maturing May 14, 2017, tipped twice this year. It has a sinking fund feature. This makes working out YTM a bit hard, but Durig plows ahead, using a 2 year maturity and an Oct. 22 price of $95.465 to work out the YTM at 10.25%.

BG Group of Britain was expropriated by the Cristina Fernandez government from its stake in Transportadora. The dispute was based on an Argentine decision to require that rates for gas be fixed at one peso per dollar, despite the devaluation of the Argentina currency. BG made its investment early in the century.

Because of the existence of a Yankee bond the British global gas firm was able to sue to enforce international arbitration in the US Supreme Court. This overrode the act of state doctrine which would have exempted Buenos Aires from complying. BRGYY may collect as much as $185 mn in damages if the Supremes rule that the arbitration decision is valid. We owned the BRGYY common stock during the period when the battle raged, how we know this.

Argentina is a favprite of Durig's, which also covers Aeropuertos Argentina 10.75% Dec. 1 2020 bonds (cusip P0092MAD5), said to yield 11.22% to maturity; unfortunately they are callable starting in 2015 which is not mentioned. Moreover, because of the dispute with BG Group, the bond only trades offshore now, in Luxembourg. It does yield 11%.

Another sinking fund bond (P0245MAC3) from shopping mall operator Alto Palermo, the 7.875% of May 11, 2017, said to have a YTM of 9.87% if bought at 94 in Sept.) It currently trades at 89.8 and yields more like 11.16% according to Morningstar. So you would not have been doing well to have bought when Durig tipped it. Moreover you can get an 8.5% yield by buying APSA common stock listed on Nasdaq.

If Argentina, Peru, and Venezuela don't tempt you, there are other high-yield Yankee bonds on offer from Durig from Ukraine: Myria Agro Holdings 10.95% of Mar. 30, 2016, rated B/B-, cusip M70609AA6) actually tipped at premium. Alas, it now cannot be traded because of the Ukrainian political crisis.

Or consider PT Gajah Tunggal BK which makes tires in Indonesia. Its S&P B+ rated bonds, the 7.75% of Feb. 6, 2018 (cusip Y71214AA1) have a YTM if bought (as of Sept 26) at 98.185 of 8.25%. It issued $500 mn in bonds this January at a discount. Again there is an ADR of its common stock, PTGJY, which trades at $8 after it was launched on the pink sheets this summer at $11.50.

If you want riskier, consider the Trade & Development Bank of Mongolia (Y8904HAD7) 8.5% Yankee bonds maturing Sept. 20, 2015 which, if bought Sept. 20 at 97.35 have a YTP of 10%. Rated BB-/B1. Again this bond was for an Ulaanbaator bank was tipped twice this year by Durig.

Again we have a safer alternative in our www.global-investing.com model portfolio which paid subscribers know about.