2023-07-23 10:18:28
Offers an attractive yield premium with a low risk of default: the French conglomerate Danone Image: Reuters
Investors who forego first place in bonds will be well rewarded for doing so. And at a manageable risk.
One of the key phrases of investing is: no return without risk. If someone promises an 8 percent return without risk, extreme caution is required. It simply doesn’t exist. However, this should not deter you from trying to optimize the risk/return ratio. In this respect, it is interesting to take a look at a special area of the bond market called corporate hybrids, in other words subordinated corporate bonds with generally long or indefinite maturities.
First of all, subordinated is not really attractive from an investor’s point of view. If the worst comes to the worst, if the bond debtor becomes insolvent, other creditors will first get their money back, and the subordinate creditors only later. That increases the risk. However, the relevant question is always what reward investors receive for accepting the higher risk. The return on normal corporate bonds with a good credit rating is currently 4 percent on average across all maturities. That is more than that of the federal bonds, which are considered to be particularly safe, with a yield of around 3 percent for two years and almost 2.5 percent for ten years.
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