35LS

[Inv101]

First post, as now coming into bonds as a newbie investor, albeit with a pretty reasonable understanding of how they work.

Can anyone advise why the HSBC 35LS bonds offer such a high yield? They seem very plain vanilla. The only factor I can see is that they are subordinated, but does that really make a difference if the issuer is HSBC?

[Gan020]

The only factor I can see is that they are subordinated, but does that really make a difference if the issuer is HSBC?

I think you are answering your own question in many ways. The market determines that there is extra yield on this due to the subordination. Whilst the risk of things going wrong may appear very low, the consequences if things start going wrong are high.

The question is whether the market has priced the risk correctly. Your question suggests you think the market has not and the risk is far lower than the market thinks. It is rare for bonds to be priced incorrectly for any length of time.

Additionally I have not read the prospectus but my suspicion would be that as subordinated debt it is almost probably regulatory capital and may carry rights for HSBC to not pay the coupon and/or it be converted to equity

[hiriskpaul]

I just had a quote for 10k nominal, price 92.64. That is a yield to maturity of 6.32%. In the current market that is not a particularly high yield. The fact that the bond is subordinated certainly does add to risk, but HSBC is very well capitalised and I would consider the risk of default to be very low.

[SKYSHIP]

hiriskpaul - 35LS is the EPIC for HSBC 5.375% 22/08/33.

So this is a 10yr bond, ie you're pretty much a hostage to fortune of interest rate changes; whereas a bond at a discount & maturing in less than 5yrs is more readily anchored by the maturity date and the YTM.

At the moment many are simply buying bonds to park cash in the short-term; so really looking at a maturity sub 2yrs. Obviously YTMs are therefore quite a bit lower.

I have however found an effective 2yr bond, very secure, with a YTM of 5.59%.

NBPS is a Zero Dividend Pref share, the now sole one (another redeemed a month ago) issued by NB Private Equity (NBPE). The bond is covered 17x by NBPE Net Assets. Matures at 130.63p on 30/10/24.

Someone sold a few recently & MMs are simply passing on the stock; so offered at 118.9p a few days ago (YTM @ 4.8%); but at the moment possible to buy at 117.12p for 5.59%pa. That's a 2yr gain of 11.5% - A great BUY IMO.