Corporate bond returning 5%

MarcoM

Hi has anyone invested in a specific corporate bond of a good company returning around 5% a year?
thinking of doing so in view of the bank fixed rates dropping in the near future.
Grateful for any ideas.

JohnWinder

Certainly riskier than investing in the bonds of 50 different good companies. Are you up for it?

MarcoM

JohnWinder said:

Certainly riskier than investing in the bonds of 50 different good companies. Are you up for it?

done ok in years gone by investing in energy companies i.e. ENEL of Italy but yes I would be happy with a corporate bond tracker too from the likes of Vanguard or other. any ideas are good to hear.

Linton

You do need to understand how investment bonds work.  They are more complex than a simple fixed term savings account.  If you dont understand the gotchas say so and we can explain further.

HL have a list of corporate bonds you can buy from them: https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds.  I would expect HL to be more comprehensive than other platforms, some of which dont sell bonds at all.

If you look down the list you will see an HSBC Bond with a Coupon of 5.375% and a current cost of £99.  That means that it will pay 5.375/99 X 100=5.43% annually until 4th November 2030 at which point you get £100 for each bond.  So you will also make a capital gain of about 1%.

 This is safe unless HSBC go bust.   You can make similar calculations for all the bonds listed.  However it only works out if you hold to maturity.  If you sell before then you may make a capital loss or even a higher gain.

A corporate bond fund has been suggested.  Yes it will remove the risk of getting wiped out by one failure but will bring in the much more likely though less catastrophic risk that you will make an unexpected capital loss when you sell since most of the underlying bonds in the fund will be some way from maturity.

ColdIron

If you proceed be sure that you buy them through a recognised platform and don't get hoodwinked by a clone vendor, mini-bond etc

Stargunner

Linton said:

You do need to understand how investment bonds work.  They are more complex than a simple fixed term savings account.  If you dont understand the gotchas say so and we can explain further.

HL have a list of corporate bonds you can buy from them: https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds.  I would expect HL to be more comprehensive than other platforms, some of which dont sell bonds at all.

If you look down the list you will see an HSBC Bond with a Coupon of 5.375% and a current cost of £99.  That means that it will pay 5.375/99 X 100=5.43% annually until 4th November 2030 at which point you get £100 for each bond.  So you will also make a capital gain of about 1%.

 This is safe unless HSBC go bust.   You can make similar calculations for all the bonds listed.  However it only works out if you hold to maturity.  If you sell before then you may make a capital loss or even a higher gain.

A corporate bond fund has been suggested.  Yes it will remove the risk of getting wiped out by one failure but will bring in the much more likely though less catastrophic risk that you will make an unexpected capital loss when you sell since most of the underlying bonds in the fund will be some way from maturity.

When you follow the link to the HL website it says that the buy price is £1.01. If that is the case you would lose 1% at maturuty rather than gain 1%. Is there a reason that the buy price is showing £1.01?

MarcoM

Linton said:

You do need to understand how investment bonds work.  They are more complex than a simple fixed term savings account.  If you dont understand the gotchas say so and we can explain further.

HL have a list of corporate bonds you can buy from them: https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds.  I would expect HL to be more comprehensive than other platforms, some of which dont sell bonds at all.

If you look down the list you will see an HSBC Bond with a Coupon of 5.375% and a current cost of £99.  That means that it will pay 5.375/99 X 100=5.43% annually until 4th November 2030 at which point you get £100 for each bond.  So you will also make a capital gain of about 1%.

 This is safe unless HSBC go bust.   You can make similar calculations for all the bonds listed.  However it only works out if you hold to maturity.  If you sell before then you may make a capital loss or even a higher gain.

A corporate bond fund has been suggested.  Yes it will remove the risk of getting wiped out by one failure but will bring in the much more likely though less catastrophic risk that you will make an unexpected capital loss when you sell since most of the underlying bonds in the fund will be some way from maturity.

Yes was thinking about the HSBC one too.

MarcoM

ColdIron said:

If you proceed be sure that you buy them through a recognised platform and don't get hoodwinked by a clone vendor, mini-bond etc

I'd get them through hl where I already have a substantial amount of investments, mind you I'd better check their charges

MarcoM

Linton said:

You do need to understand how investment bonds work.  They are more complex than a simple fixed term savings account.  If you dont understand the gotchas say so and we can explain further.

HL have a list of corporate bonds you can buy from them: https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds.  I would expect HL to be more comprehensive than other platforms, some of which dont sell bonds at all.

If you look down the list you will see an HSBC Bond with a Coupon of 5.375% and a current cost of £99.  That means that it will pay 5.375/99 X 100=5.43% annually until 4th November 2030 at which point you get £100 for each bond.  So you will also make a capital gain of about 1%.

 This is safe unless HSBC go bust.   You can make similar calculations for all the bonds listed.  However it only works out if you hold to maturity.  If you sell before then you may make a capital loss or even a higher gain.

A corporate bond fund has been suggested.  Yes it will remove the risk of getting wiped out by one failure but will bring in the much more likely though less catastrophic risk that you will make an unexpected capital loss when you sell since most of the underlying bonds in the fund will be some way from maturity.

p.s. Enel places new perpetual hybrid bonds for 1.75 billion euros to refinance some of its outstanding hybrid bonds | Enel Group

I was also looking at this, held an enel bond for 50k 2014 and 2024 which was ok, consider them farily safe in the scheme of things.

Linton

Stargunner said:

Linton said:

You do need to understand how investment bonds work.  They are more complex than a simple fixed term savings account.  If you dont understand the gotchas say so and we can explain further.

HL have a list of corporate bonds you can buy from them: https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds.  I would expect HL to be more comprehensive than other platforms, some of which dont sell bonds at all.

If you look down the list you will see an HSBC Bond with a Coupon of 5.375% and a current cost of £99.  That means that it will pay 5.375/99 X 100=5.43% annually until 4th November 2030 at which point you get £100 for each bond.  So you will also make a capital gain of about 1%.

 This is safe unless HSBC go bust.   You can make similar calculations for all the bonds listed.  However it only works out if you hold to maturity.  If you sell before then you may make a capital loss or even a higher gain.

A corporate bond fund has been suggested.  Yes it will remove the risk of getting wiped out by one failure but will bring in the much more likely though less catastrophic risk that you will make an unexpected capital loss when you sell since most of the underlying bonds in the fund will be some way from maturity.

When you follow the link to the HL website it says that the buy price is £1.01. If that is the case you would lose 1% at maturuty rather than gain 1%. Is there a reason that the buy price is showing £1.01?

Yes, £100 is known as "par",.  If you buy above par you make a capital loss at maturity.

The reason why prices are different to par is that interest rates change over time but the bond coupon % of the £100 par is fixed.  Say you bought some time ago when bonds were being issued at 0.5% coupon.  Today bonds are available at say 4.5% coupon so you could never sell your 0.5% bond at par because no-one would  be tempted by a 0.5% return.

Therefore the market price of the 0.5% bond drops to the point at which the effective overall % returns are the same, which is where the Yield to Maturity comes in.  The fall in price is limited because  everyone  knows that the price will be £100.at maturity.  So it is a complex balance of less money in interest sooner and a capital gain later at maturity or the reverse..

EthicsGradient

Stargunner said:

Linton said:

You do need to understand how investment bonds work.  They are more complex than a simple fixed term savings account.  If you dont understand the gotchas say so and we can explain further.

HL have a list of corporate bonds you can buy from them: https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds.  I would expect HL to be more comprehensive than other platforms, some of which dont sell bonds at all.

If you look down the list you will see an HSBC Bond with a Coupon of 5.375% and a current cost of £99.  That means that it will pay 5.375/99 X 100=5.43% annually until 4th November 2030 at which point you get £100 for each bond.  So you will also make a capital gain of about 1%.

 This is safe unless HSBC go bust.   You can make similar calculations for all the bonds listed.  However it only works out if you hold to maturity.  If you sell before then you may make a capital loss or even a higher gain.

A corporate bond fund has been suggested.  Yes it will remove the risk of getting wiped out by one failure but will bring in the much more likely though less catastrophic risk that you will make an unexpected capital loss when you sell since most of the underlying bonds in the fund will be some way from maturity.

When you follow the link to the HL website it says that the buy price is £1.01. If that is the case you would lose 1% at maturuty rather than gain 1%. Is there a reason that the buy price is showing £1.01?

Note there are 5 HSBC bonds shown there - "HSBC Bank plc", 5.375% coupon, maturing 22 August 2033 is priced at £101.925, while "HSBC Bank plc", also 5.375% coupon, maturing 4 November 2030 is priced at £99.00. You must always be careful about exactly which bond you're looking at.