What’s the Deal With Barclays’ New Bond?
The Boundaries of Banking Bonanza
So, our precious Barclays has whipped out two bonds faster than a magician at a kid’s birthday party. One’s in euros (ISIN: XS2861438815) and offers a cheeky annual coupon of 5.3% — not too shabby! But let’s talk about the real player here: the dollar-denominated bond (ISIN: XS2861438732) boasting an eye-watering 8.3% gross annual cumulative rate! Cumulative! That means all the coupon payments stack up like your laundry pile until they finally give you a nice lump sum. Don’t you just love the thrill of anticipation? Almost like waiting for a text back from your crush!
The Bigger Picture: Economic Shifts
Now, enough chit-chat about bonds, let’s set the stage! The economic landscape seems to be changing quicker than a comedian’s punchline; Central Banks are hinting at a shift in monetary policy. Europe is sipping lukewarm tea while the USA struts around flaunting its economic muscle. With the latest inflation rates showing signs that they’re ‘under control’ — whatever that means — and employment data looking healthier than a kale smoothie, the Fed’s making cuts to interest rates. Two 25-basis-point cuts are on the horizon like a bad sequel no one asked for.
Calling All Investors: Should You Bet on Bonds?
So, why settle for regular old bonds when you can have callable ones? If you’re riding the wave of falling rates, this Barclays bond could be your ticket to financial bliss. If rates dip, the bond could be called early. Sounds like a friend who’d bail on dinner plans the moment something better comes along! And should you choose to part ways with this bond before it hits maturity, you won’t be left high and dry. You’re still in line to pocket some interest. But hold onto your hats because if interest rates go up, well, good luck selling that bond at a decent price. It’s like trying to sell a flip phone on eBay.
Crunching the Numbers
Let’s cut to the chase and do some math — yes, I know, math! The bond’s at a discount currently, trading around 99.8%. If you should decide to sell it after a couple of years, say hello to that sweet accrued interest of 20.84 USD for every 100 USD nominal value. It’s like getting a coupon for a free dessert as a little bonus!
However, the kicker here is that these delightful coupons, while enticing, don’t come flowing in like a fountain of chocolate. They accumulate and are paid out only at maturity or if the issuer decides to surprise you with an early repayment. So, who likes to play the waiting game? Your internal rate of return drops to 5.21% gross if you consider the lack of re-investment of those interest payments. It’s an investor’s roller coaster ride!
Risk and Reward: The Fine Print
Let’s not forget: this bond has a risk level of 1 out of 7. You wouldn’t climb Mount Everest without oxygen, would you? Similarly, be aware that there’s a default risk with issuing parties. So read the fine print, the base prospectus, and all those necessary documents—because unlike dating, ignoring your due diligence doesn’t pay off in the long run.
In summary, if you’re feeling lucky and are in the market for a dollar-denominated bond with the potential for early repayment, Barclays just might have the golden ticket. Whether you end up with a lovely payout or a capital loss, well, isn’t that just the thrilling world of finance? Whatever you choose, just remember: always read the disclaimers and never stop asking questions. Now, who’s ready for some more financial shenanigans?
Today we focus on the newest addition to Barclays, the cumulative fixed rate bond callable in dollars. The bond, which is part of a double issue by the English issuer, was created by Intermonte. The two structures are identical with differences regarding the returns offered and obviously the reference currency. The Bond ISIN XS2861438815 is expressed in euros and pays an annual coupon of 5.3% (we talked about it yesterday here), while the bond ISIN Today we focus on this bond.
Let’s delve deeper into the characteristics of the product, contextualizing it as always
The direction seems clear. Central Banks start changing monetary policy
Unlike Europe, the USA shows greater economic strength and resilience, with inflation in September above expectations but under control, employment data clearly improving and GDP in September at 3%, also better than expected. Retail sales also came out strong.
In any case, the Fed has also taken the path of rate cuts, which it started with the first cut of 50bps in September. The market expects up to two further 25bp cuts this year. For 2025 the expectation is for a further 4 cuts of 25bps, which would imply Fed Funds in the 3.25% area at the end of next year.
If the context is clear, this is why we propose a structure that is now quite well known to investors: cumulative fixed rate bonds. In fact, the idea for both products is to have a competitive return especially in a scenario of declining expected rates.
The focus is on falling rates with the new Barclays Bond
The framework, therefore, seems to favor callable structures such as the Barclays Bond. The bond, in fact, is designed above all for those who espouse a view of declining rates in the coming years. This is because the chances of recall by the issuer increase, thus significantly reducing the residual life of the product, despite an attractive rate. Favorable scenario also for those who decide to sell the Bond before maturity. In fact, if rates were to continue to fall, the price of the Bond, given the same issuer risk, would rise, favoring the investor.
8.3% cumulative annual and callability possible from the end of the first year
Il Bond Fixed Rate Callable ISIN XS2861438732 at Barclays It has a very simple structure. The product, denominated in dollars, pays a gross annual fixed rate of 8.3% cumulative. Cumulative means that the coupons are paid only upon maturity or in the event of discretionary early repayment (callable) by the issuer and therefore they are accumulated until payment and not paid every year. The structure provides for the possibility of annual callability starting from the end of the first year (October 2025) and expires in 18 years. TO expirationor in case of recall anticipatedthe bond repays the 100% of the face valueplus accrued coupons. For example, at maturity, set for October 2042, the gross redemption value will be 249.4 dollars (under the callability calendar with related amounts), for every 100 euros of nominal value.
Thanks to callability, if rates were to fall, as expected, it is likely that the Bond will be repaid early in the next few years. Why? Because the issuer, given the same financing cost, will be better off repaying this bond which pays 8.3%, to issue new ones at a lower rate. This is why we believe that this bond goes well with those who share the consensus view on rates. What if things were to go differently?
We remind you that the investor will always be able to obtain the interest accrued by selling the product at the market price. Let’s take an example: if the investor decided to sell the product after two and a half years of life from issue, for example on 16 April 2027, he would sell the Bond at the market price and, regardless from the selling price of the security, would still collect a gross interest rate of 20.84 USD for every 100 USD of nominal value purchased, or a total gross consideration of 120.84 in the case of selling the security at par. However, the total return will vary based on the purchase price by the investor and the selling price of the bond. In fact, the price of the Bond will be influenced by various factors including the trend of interest rates and issuer risk. Given the same issuer risk, if rates fall there will be an appreciation of the bond which is therefore favorable to the investor. On the contrary, if rates rise and/or if issuer risk increases, there will be a depreciation of the Bond unfavorable to the investor which could even more than balance the interest accrual, leading to a capital loss.
We also specify that the 8.3% gross rate is the annual rate on the basis of which the interest will be calculated and will be paid in a lump sum upon expiry or on the first early repayment exercise date. Consequently, it is not possible for the investor to reinvest the interest, in the absence of a periodic flow of coupons before redemption. The internal rate of return calculated at issue with a price of 100 and considering the lack of possibility of annual reinvestment of interest, therefore drops to 5.21% gross.
Let’s remember that the ratings at Barclays è A1 per Moody’s (last updated 29/01/2020), A+ per S&P (last updated 19/05/2023) e A+ per Fitch (last updated 20/12/2018).
We conclude by highlighting that the Bond is issued at 100, but currently trades on the market at a discount of 99.8%.
Disclaimer
The Bond is subject to a risk level of 1 on a scale from 1 to 7. Investment in this type of Bond exposes the saver to the default risk of the issuer. All returns expressed are before taxes.
This communication does not in any way constitute investment advice or research, has not been prepared in accordance with legal requirements to promote the independence of investment research and is not subject to any prohibition prohibiting trading before the dissemination of investment research.
We remind you, before joining, to carefully read the base prospectus, any supplement, the summary note, the definitive conditions and the document containing the key information (KID) and, in particular, the sections dedicated to the related risk factors the investment, costs and tax treatment relating to the financial products mentioned therein available on the issuer’s website: Click here.
For more information, carefully read the warnings page. Click here.
Hello, financial fanatics! Today, we’re deep-diving into Barclays’ latest shiny toy: the cumulative fixed rate bond callable in dollars. Sounds fancy, doesn’t it? I mean, who wouldn’t want to play with bonds that are ‘cumulative’ and ‘callable’? It’s like a financial Rubik’s Cube wrapped in an enigma, and we’re here to unravel it. Grab your monocle, let’s scrutinize!