Corporate Bonds....anyone bought these

swift1_2

I've had a look at the NR annual reports as pointed out by Richard and found the following on page 85:

The 5.625% subordinated bonds due 2015 are not redeemable in the ordinary course of business before 13 January 2010.
The 11.734% subordinated loan 2016 is repayable in five equal annual instalments from 2012 to 2016.
The 5.75% subordinated bonds due 2017 are not redeemable in the ordinary course of business before 28 February 2012.
The 103⁄8% subordinated bonds due 2018 are not redeemable in the ordinary course of business before 25 March 2018.
The 93⁄8% subordinated bonds due 2021 are not redeemable in the ordinary course of business before 17 October 2021.

So for the 5.625% bond which has a maturity of 2015, it is possible to redeem it come 13 Jan 2010? or is this more the case NR if they so choose can redeem it?
So, if I understand correctly, the Gross Redemption Yield of 37% is to redeem this bond come 13-Jan-2010 - which is just over a year away - so a return of 37% for a year!! that sounds just too good to be true! :j Its more than likely that the gov't will still be holding NR for at least another year.

purch

The Subordinated Debt issues are not guaranteed by the Government in the same way that ordinary deposits are.

The redemption dates mentioned on the sub debt refers to the issuer not the holder.

P.S. I hold, have held numerous Bonds, Gilts, Corp Bonds within my SIPP, all directly held. I have often said that would not hold Bonds within a Fund (for the reasons mentioned) but with current yields and prices I actually do think this is a good time for investers without the lump sums required for direct holding, or the ability or confidence to trade directly to buy into a Corp Bond Fund.

Ian_W

purch wrote: »

I have often said that would not hold Bonds within a Fund (for the reasons mentioned) but with current yields and prices I actually do think this is a good time for investers without the lump sums required for direct holding, or the ability or confidence to trade directly to buy into a Corp Bond Fund.

You have indeed and so it was with some trepidation that about a month ago I switched into a couple of corporate bond funds on the basis that interest rates were about to fall considerably and though defaults will increase, a [too?] high level seems to be priced-in.

Any thoughts on the future prospects for international [mostly developed economy government] bonds and gilts which I already hold in funds?

Rather worryingly H-L started promoting fixed interest a few weeks after I'd switched! :eek:
At least none of the funds I used were being promo'ed by Mark Dampier! :cool:

Richard_DandR

So for the 5.625% bond which has a maturity of 2015, it is possible to redeem it come 13 Jan 2010? or is this more the case NR if they so choose can redeem it?
So, if I understand correctly, the Gross Redemption Yield of 37% is to redeem this bond come 13-Jan-2010 - which is just over a year away - so a return of 37% for a year!! that sounds just too good to be true! :j Its more than likely that the gov't will still be holding NR for at least another year.

Unless the terms of the bond include covenants that would trigger early redemption (given NR's recent history), I would expect the bond to redeem in 2015.

I cannot imagine that NR would be able to refinance that bond (around £300 million in issue) at such a low rate (5.625%) in the current circumstances. Companies usually redeem early if the are restrictive covenants in the terms or the bond is priced above par.

Gross redemption yields are usually calculated on a "yield to worst" basis. If the price is below par, the longest date (i.e. 2015) would be assumed, above par the shortest date would be used. But the accounts do not state an earlier redemption date is available - it states a negative.

purch

Any thoughts on the future prospects for international [mostly developed economy government] bonds and gilts

For what it's worth, I think the longer end of the curve in Government debt is overpriced. Considering the amounts of money that need to be raised over the next 12-18 months the yields at these levels look too low to achieve the amounts they will need.

If the Funds are mainly invested in the shorter end, (10 years) then there is still value.

Richard_DandR

swift1 wrote: »

Given that the Northern Rock is now guarenteed by the gov't, the following caught my eye:
Nrock 5.625 13 Jan 2015 ENR0 73.55 Thu 13/01/2015 7.65% 37.04% +3.01%
73.55 to buy
7.65% income yield
37.04% gross redemption yield - is the yield you get if you hold till maturity?

Having had a look at Bloomberg, this is a fixed to variable bond. The interest is fixed at 5.625% to 13/01/2010 and thereafter at 5year UK Treasury + 155 basis points.

Bloomberg showed prices quite different to that shown above 89.261/93.877, with gross redemption yields on those prices 8.26% and 7.22%. So I looked at the "All Quotes" page and it had a wide range:


Goldman Sachs

75.000/77.000 (bid price/ask price)

11.950/11.379 (bid yield/ask yield)

14.05 (time)



Morgan Stanley

70.000/75.000

13.467/11.950

7.24


RBS Financial Mkts

65.000/70.000

57.850/47.316

14.06


HSBC Executable

89.339/93.960

8.237/7.201

14.06


RBC London

85.091/95.091

9.252/6.957

12/12/08


Merrill Lynch FI IDX

60.915/ -

16.660/ -

12/12/08

Quite confusing that there is such a range of prices although 2 are stale (out of date).

The RBS gross redemption yield obviously assumes 2010 as redemption date while all the other quotes reference 2015.

Perhaps a very good example of why we should use funds rather than invest direct - too many uncertanties.