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Here’s a quick guide on where to buy, sell and compare retail bonds.
Any sensible investment portfolio should be diversified. This as we all know means not having all your eggs in one basket. If you are looking for fixed income investments, that are relatively low risk retail bonds could be the answer.
What exactly are retail bonds?
They are basically corporate debt where a loan is split up between holders rather than one lender.
Bonds are basically loans made to a government, company or other organisation and bought by investors such as banks, insurance companies and fund managers.
Where to buy and sell retail corporate bonds?
Fixedincomeinvestor.co.uk has an excellent bond forum where you can ask questions, discuss the market and check prices, yields and charts.
Of course, if you just want to speculate on the fixed income markets you can do so through a broker like ETX Capital.
What are the risks of retail bonds?
The major risk is that the company that has issued the retail bond will go bankrupt and not be able to pay back the bond. In that case you are the investor will lose you money, unless the administrators manage to allocate funds.
There is a fairly liquid market in retail bonds on the ORB so if you have a bond in a listed company a quick look at the share price will tell you if the company is in good heath or not. In rare cases, companies withhold coupon payments if they are going through a bad patch.
There is also risk on the underlying price of the actual bond. This varies, based on how risky it is. The more risky a bond the lower the price and the higher the yield.
Take for example the Enquest 2022 5.5% retail bond. This is tradable on the LSE ORB market.
If you bought £100k at the issue price of 100 you would receive 5.5% interest ( £5,500) per year. However, if you would the same amount now (currently priced at 89) it would only cost you £89,000.
You would still receive £5,500 interest for spending less, which gives it a yield of around 10%.
The yield is higher because the risk is higher.
If the bond was priced at 105, buying £100k would cost £105,000 and your yield would be lower.
You can compare corporate retail bond yields here.
What are the benefits of GBP corporate retail bonds?
- They are usually lower risk than stocks because they are not subject to volatile price swings.
- You get your money back when the bond matures.
- They provide a steady stream of income from the fixed interest payments.
- Diversification is key – you can invest in governments, markets, sectors and companies.
- If interest rates fall you can maintain high interest income.
- There is the option to speculate on low priced bonds, you think will recover.
- You can sell them quickly if listed on the LSE ORB, most others are quite liquid.
If you want to know more about retail bonds, you can also read this excel book: The Sterling Bonds and Fixed Income Handbook by Mark Glowrey. It covers absolutely everything you need to know about investing in bonds.
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.