Fixed bonds.

Bond is a term that covers a range of different investment types.

Some fixed-term deposits refer themselves as bonds but so do some risk-based investments. Including unregulated investments.

Some of those unregulated investments claim they have FSCS protection when they do not. Or they word it to be as vague as possible.

Maybe tell us what the high rate ones are.

What’s the Tesco bond yielding?

Mike_Smyth wrote: »

Thank you for reply

International bonds: Tesco, 5% 21nov2020, GBP
Company name: Quilter cheviot
Issue information
Borrower Tesco
Bond type Coupon bonds
Placement method Open subscription
Par amount, integral multiple 100 GBP
Nominal of international bonds 100 GBP
Minimum settlement amount 100 GBP
Outstanding principal amount 100 GBP
Amount 200,000,000 GBP
Outstanding face value amount 200,000,000 GBP
Placement date **/**/****
Maturity date **/**/****
Floating rate No
Coupon Rate *%
Current coupon rate 5%
Day count fraction ***
ACI *** (10/21/2019)
Coupon frequency 2 time(s) per year
Interest accrual date **/**/****
Listing

That was one of them, 5% with Tesco!

I cannot put up URL the forum does not allow newbies too!

That has no FSCS protection. It is not a retail financial product. It is a corporate bond and has 100% loss potential.

AnotherJoe wrote: »

So, I dont do bonds but, putting it roughly, does that mean you buy it for £103, get 4.9% but when it redeems in a years time you'll get back £100, hence nominally you are really only getting 1.9% and at risk of Tesco not paying it back at all? Perhaps quite a low risk but OTOH look what happened to Tesco a few years ago.

Yes, that's basically correct, although I think that particular bond expiring on that date is the one from Tesco Personal Finance which actually has a price of 102.3 and so gross yield to maturity is 2.8%. As an aside 'what happened to Tesco a few years ago' was not an event in which they couldn't repay their short term debt obligations... but I take the point.

And, 1.9% is what you could get on a 2 year fixed account with FSCS protection.
So, if my understanding is correct, turns out its not a free lunch after all.

If you were an institutional investor trying to deploy hundreds of millions, you wouldn't find an £85k FSCS protected bank account to be much use. All these institutions compete with each other to put money into the opportunities available, making the market, but not necessarily getting a very high return for the risk taken - because if people thought the return was too high for the risk, the prices would go up and yields down.

For an average retail banking customer to look at using those risk opportunities instead of something with a compensation scheme, they should be getting a rate comfortably higher than what the banks offer. But you have to understand what you are getting because with such bonds, the effective yield you get can be a lot lower than the 'headline' 5%, and FSCS does not protect against the kind of risks you're taking. If someone says it is FSCS protected just because you bought it from a stockbroker, it is likely to be a scam.