Title: Friday POW! #601 — Pick of the Week: the Macy's (M) 6.7% bond due 7/15/2034 Source: Haymaker (David Hay's Substack newsletter, PAID) Author: The Haymaker Team (David Hay) Date: 2026-JUN-19 (post dated JUN 19, 2026; bond price 95.474 / data per the post) URL: https://haymaker.substack.com/p/friday-pow-601 Type: Written newsletter (no video / no timestamps). Paid subscriber content saved for personal study. This is POW! #601. Unlike most POW! editions it features a BOND, not a stock — the Macy's 6.7% senior unsecured note due 7/15/2034 (BB+, YTM 7.45% at a price of 95.474). Embedded images in the post (not saved): the Macy's Wikipedia logo, two Bloomberg bond screens, a Bloomberg key-financials table, and a 5-year M price chart with overhead resistance. The post ends with a note that updated Buy/Trim/Hold portfolio ratings will come in NEXT week's POW! — so there is no portfolio table this week (portfolio.json unchanged). Note: Verbatim article text below (written post — no spoken fillers to strip). The footnote quoting Google Gemini on the "BB anomaly" is reproduced as-is from the post. ================================================================ This bond is no turkey! While the soon-to-be showcased debt instrument was issued by the iconic American retailer that has popularized its Thanksgiving Day Parade, it's as juicy as a New York steak from Ruth's Chris. [Image: Macy's logo — Source: Wikipedia] To defend that statement, here are the details: [Image: Bloomberg bond screen] Okay, we admit it, that's a lot of Bloomberg data, but allow us to make it easier for you by calling your attention to the key numbers. First, the face interest rate is 6.7%, as shown at the upper left. The next critical item is the yield-to-maturity (YTM). This is a function of the 6.7% face rate divided by the current market price of 95.474 and the due date of 7/15/2034. These inputs produce a YTM of 7.45%. (You can see the YTM six lines down from the top on the left.) Clearly, this truly is a juicy, even delectable, yield. The spread referred to right above the prevailing price of 95.474 is the excess yield over U.S. Treasuries (USTs) of a somewhat comparable maturity (actually, the Macy's bond is two years shorter) – 290.78 means that this bond is projected to return almost 3% (300 basis points) over the UST due in 2036. Despite the plethora of information shown above, what it doesn't include is the credit rating for some strange reason. In this case, it is BB+. This means it is half a notch below investment-grade. Numerous prior Haymaker editions have conveyed that BB-rated bonds represent our favorite slice of the corporate bond market. This is because their historic default rate is negligible, less than 1%. Various academic studies have shown that BB-rated debt generates the corporate bond market's best risk-adjusted returns.* Beyond that comforting consideration, Berkshire Hathaway has recently bought about 1% of Macy's shares. For sure, $55 million is "walking around money" for Warren Buffett's flagship company, now run by Greg Abel, yet, it's a nice vote of confidence and is consistent with M's operating turnaround. Critically for bondholders, its free, or excess, cash flow has increased by double digits in each of the last two years. It is forecast to jump another 11% in 2026. For an additional layer of safety, M possesses a substantial real estate portfolio, reflecting its many decades of owning and operating some of America's most cherished stores. The Wall Street Journal reported on June 5th that, per property expert CoStar, the value of M's real estate sums to between $7.9 billion and $10.5 billion. That exceeds its stock market capitalization of $6.5 billion. It also comfortably covers its outstanding debt of $5.1 billion, as you can see. [Image: Bloomberg — Summary of Key Financial Data for Macy (M) since 2023, with 2027 and 2028 estimates] What's also noteworthy from the above table is that M holds almost $1.3 billion in cash. Accordingly, its net debt is just a shade over $3.8 billion. Further, the very last line shows that free cash flow is projected at $1.4 billion this year. This affords it the ability to pay down its IOUs fairly dramatically, if it so chooses. (Admittedly, free cash flow is projected to drop materially next year before rebounding in 2028.) Its stock chart confirms the turnaround thesis. It broke above shorter term resistance late last year, but now appears poised to exceed four-year resistance. [Image: Five-Year Price Chart for M with overhead resistance displayed — Bloomberg] Additionally, this bond has a Change of Control (CoC) provision that provides protection to bond holders in the event of a leveraged buyout (LBO). Those are anathema to bond holders, as they can lead to significant ratings downgrades and related steep price drops. Should a buyout happen with this debt instrument, holders can sell it back to the company at a slight premium to par (and gain based on the recent price of $95.474). Our bottom line on this situation is that it's a low-risk way to secure what is essentially a 7 ½% yield for many years to come. In fact, we'll go so far as to do our usual neck-sticking-out routine, like a turkey at Thanksgiving, and say we believe there's a good chance this return will beat the total return on the S&P 500 over the rest of this decade… and maybe even out to the 2034 maturity of this security. The Haymaker Team *Here's Google Gemini's take on this aspect: In fixed-income markets, they occupy a 'sweet spot' (often referred to as the 'BB anomaly' or the "fallen angel effect"). They sit right at the intersection of Investment Grade (IG) and High Yield (HY), combining the lower default rates of higher-rated debt with the higher coupon yields of speculative-grade debt… BB bonds are the highest tier of High Yield (junk) bonds. Over the last few decades, structural shifts have caused BB bonds to grow to roughly 50% to 60% of the entire High Yield market. Despite being labeled "speculative," their historical default rates are incredibly low—averaging less than 1% annually since the 1980s. You get paid a high-yield premium for an asset that defaults far less frequently than B- or CCC-rated debt. Note: We will provide updated Buy, Trim & Hold ratings in next week's POW! edition.