Retail bonds are back
The retail bond market had a pretty quiet 2014 in terms of new issuance. The first quarter of this year was, too. However, it has sprung to life again in the past few weeks amid a busy company results season and there are some decent deals around.
Retail bonds have become increasingly popular in recent years, the London Stock Exchange set up the Order Book for Retail Bonds in early 2010 in response to growing private investor demand for access to fixed income securities. It was launched less than a year after UK interest rates were cut to a record low of 0.5 per cent. They've been there ever since.
Earlier this month, Intermediate Capital Group raised £160 million after issuing a 5 per cent sterling fixed rate bonds due 2023. Now, International Personal Finance (IPF) has issued its own 5.875 per cent 2022 retail bond - open until noon on 8 April - and Provident Financial a 5.125 per cent bond maturing 2023 - closes 2 April.
There's something for ethical investors, too. A few weeks ago, Retail Charity Bonds plc launched a roadshow on behalf of Hightown Praetorian & Churches Housing Association Limited. Hightown is a registered social landlord and charity, which runs affordable homes mainly in Hertfordshire, Bedfordshire and Buckinghamshire.
'Bond markets are reasonably firm at the moment. With inflation falling off, people are less hawkish on interest rates and the retail bond market is more positive,' says Mark Glowrey, head of retail bond sales at Canaccord Genuity.
Yes, interest rates will rise, but forecasts for a start to tightening in the UK have been pushed back to 2016 and the risk to investors buying five-year bonds 'is rather moderate'.
Of course, bonds can be held cheaply and easily in an Isa. That way, investors avoid any tax hit and, by holding securities directly, you're not getting charged by a fund manager.
However, taking the direct approach means investors must follow some golden rules, among then 'diversification'. 'Buy portfolios of bonds, not just one,' says Glowrey.
'You must also be comfortable that the organisation you're lending money to can repay it.' Thankfully, the most recent issuances are all by companies in the £1 billion bracket and IPF's debt is rated BB+ by Fitch and Provident Financial two notches higher at BBB. That does offer investors some protection.
This article was written for our sister website Interactive Investor.