10th Apr

Green Shoots for Retail Bonds?

Following a disappointing time for ORB in terms of new issues, as Spring finally appears to have sprung there does appear to be room for cautious optimism in the retail bond space as company results season plays out

Retail bonds have become increasingly popular and the Order Book for Retail Bonds (ORB) was established in 2010 to cater for private investor demand for fixed and predictable income.

It was launched in what had become, and remains, a low interest economy and the relatively generous returns on offer outstripped anything to be had from a high-street savings product.

Recent changed to pension legislation mean that in certain circumstances a basket of retail bonds may be a good addition to the portfolio of someone seeking to achieve a better return than is currently on offer in the annuity market although anyone considering an investment should take advice according to their level of investment expertise and personal circumstances.

In early March, Intermediate Capital Group (ICP) raised £160 million from a 5%, eight year bond and more recently, doorstep lender, International Personal Finance (IPF), issued a 5.875% due in 2022.

To continue the personal loan theme, Provident Financial Group (PFG) launched a 5.125% bond maturing 2023 although the fact that it is offering such a dramatically reduced coupon from its 2011 issue at 7.5% is a good indication of current market conditions.

Mark Glowery, Head of Retail Bond Sales at Canaccord Genuity says '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'

Interest rates will rise eventually, but forecasts of a rise in the UK have been pushed back to 2016 and the risk to investors buying five year bonds is described as 'moderate'.

Those prepared to create a diversified portfolio including retail bonds, held in a tax efficient account can expect to do relatively well in the foreseeable future.

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