Double issue, one in euros and one in dollars, to satisfy the high demand for high-yield bonds. Here’s how they work and how much they yield in different scenarios.
These 2 new corporate bonds yield up to 60% in 15 years and can be subscribed with a minimum denomination of 100 euros (or dollars). With this corporate issue, investors can still find returns after the latest rate cuts by the Fed and the ECB and in view of the upcoming cuts.
In addition to offering significant profit opportunities, with coupons of up to 8.5%, these financial instruments also represent a way to diversify the portfolio, mitigating the risks associated with other asset classes, in a context in which investors are forced to accept a greater risk to obtain returns.
In this article, we analyze in detail the characteristics of these new corporate bonds, the advantages and risks in the current economic context.
These 2 new corporate bonds yield up to 60% in 15 years
The new Bnp Paribas corporate bonds, designed by Intermonte, have an approach without benchmark constraints, with attractive returns, especially in the first years of the bonds’ life.
1. Bond in euros (isin XS2840454917): this bond, launched to finance expansion and innovation projects, offers a fixed return of 6% in the first year. This means that with an investment of €5,000 in this bond, in the first year you receive four quarterly coupons of €75 each, for a total of €300 in the year. Starting from the second year, the coupons become variable, calculated as the difference between 7% and the 6-month Euribor, currently around 3.21%, with a minimum of 0% and a maximum of 5% per year.
Assuming that the Euribor remains constant at around 3.20%, the annual net yield would stabilize at around 2.99%. In the final calculation, at the end of the 15 years, the investor would have accumulated a total gain of around €2,485, for a total of €7,485 net of taxes calculated with a tax rate of 26% (and not 12.5%). In reality, it should be kept in mind that, starting from the second year, BNP Paribas has the right to early reimbursement of 100% of the nominal value.
2. Dollar Bond (ISIN XS2840454834): the second bond offers a fixed coupon of 8.5% for the first year, with coupons calculated as the difference between 8.85% and the reference rate (USD Sofr), with a minimum of 0% and a maximum of 7%, starting from the second year. This bond can also be redeemed early by the issuer starting from the second year.
Assuming an investment of $5,000, the first year you will receive a quarterly coupon flow of $106.25 and a total of $425 during the first year. Starting from the second year, the coupons will offer a net return of approximately 4.31% (keeping the value of the reference rate USD Sofr constant). When the bond matures in 2038, the investor could earn a net gain of about $3,205.
Advantages and risks
The new corporate bonds have a number of advantages and risks.
Advantages
- Above-average returns: among the most obvious advantages we find the high return with fixed rates between 6% and 8.5% which makes the offer very advantageous among low-risk investment forms.
- Diversification: these bonds can reduce the impact of market volatility more evident on other asset classes.
- Early repayment: in the event of falling interest rates after the issuance of the bond, the issuer can evaluate an early repayment that would allow it to refinance the debt at a lower cost. The investor would receive the capital earlier than expected, benefiting from the high coupon rate of the first year.
Risks
- Credit risk: although considered a safe investment, these bonds are linked to the solvency of the issuer and to changes in interest rates that can affect the value of the bonds themselves.
- High taxation: unlike government bonds, such as BTP, Bot, and other government bonds, which are taxed at a reduced rate of 12.5%, corporate bonds are taxed at a rate of 26%.
- Early repayment can be a disadvantage for investors looking for a constant coupon flow over a longer period. Furthermore, it could be difficult to select new investments in the context of falling rates.
| DISCLAIMER The information and considerations contained in this article should not be used as the sole or primary basis for making investment decisions. The reader maintains full freedom in his investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for information purposes only and its disclosure does not constitute and is not to be considered an offer or solicitation to the public savings. |
Original article published on Money.it Italy 2024-09-25 11:58:13. Original title: Queste 2 nuove obbligazioni corporate rendono fino al 60% in 15 anni
