2023-11-13 12:50:37
November 13, 2023 Today at 1:49 p.m.
The bond market might see renewed activity thanks to reduced spreads for companies and attractive rates for investors.
Corporate bonds might become the investment of the moment. The success of the loan launched by UCB, which raised 300 million euros from individuals in a single day, might reflect an ideal configuration of the bond market, with attractive rates for both issuing companies and investors.
“When a company launches into the bond market, others observe and the success of a deal can give ideas.”
Alexandre Goldwasser
Manager of Goldwasser Exchange
“Often, when a company launches on the market, others observe to see if the operation is going well and the success of a deal can give ideas,” explains Alexandre Goldwasser, manager of the bond broker Goldwasser Exchange. “We also saw last Friday the announcement of a Proximus bond issueeven if it was for the attention of professional investors.” The telecom group raised 750 million euros without difficultydemand among market players having reached… 3.3 billion euros, according to Bloomberg data.
A revival of corporate activity on the bond market might thus materialize because of a configuration that seems ideal. Indeed, on the one hand, companies benefit from attractive “spreads”. The spread is the difference between the interest rate on corporate bonds and the rate on quality government bonds, considered the risk-free investment par excellence. This spread therefore measures market confidence in companies: the lower it is, the more investors consider that companies are in a favorable situation and deserve a rate close to that of the most financially solid countries.
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Attractive rates
“In general, spreads are currently quite low,” confirms Alexandre Goldwasser. “For quality companies, the market does not demand a huge return beyond that of the most reliable states.” Taking into account the rates of safe countries, these companies can therefore consider that they do not have to pay dearly to borrow from investors.
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On the other hand, even if the corporate spread is low, the rates are relatively high in the eyes of investors because all bond yields have risen a lot over the past two years. For those who wish, today, to invest their money at an attractive rate for several years, the period might therefore be ideal.
“For individuals, it may be a good time to invest in bonds, if a fall in rates is confirmed.”
Alexandre Goldwasser
Manager of Goldwasser Exchange
“Everything depends on the evolution of interest rates,” explains Alexandre Goldwasser. “In the last two weeks, they have tended to start falling once more. We will have to see how they evolve in the coming months, but for individuals, it may be a good time to invest in bonds because, if a drop in rates is confirmed, they will have been able to invest their money at a high fixed rate for several years. The issuing company still needs to last over this period, but there are many issues from solid companies, such as UCB.”
Subscribe or redeem?
As for whether it is better to subscribe to an issue on the primary market, where new bonds are issued by companies, or to buy back securities on the secondary market, where bonds issued in the past are traded, “it all depends on the needs of the investor”, explains Alexandre Goldwasser. “For those who need an annual coupon to cover certain expenses, an issue such as that of UCB is interesting. On the other hand, if the investor is looking for an alternative to shares, it is better to go to the secondary market, where you can find in particular an Olo (linear bond of the Belgian State, Editor’s note) with a 0% coupon which offers a net return of 3 %.”
30%
Bond coupons are subject to withholding tax of 30%, which is not the case for a capital gain on a zero-coupon bond.
Indeed, when you subscribe to a bond yielding annual interest, the latter is subject to withholding tax of 30%, while zero coupon bonds are currently trading on the secondary market at a price lower than their nominal value, which provides, at maturity, a capital gain for the investor since it will be reimbursed at this nominal price. However, in Belgium, capital gains are not taxed.
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“In the case of the UCB bond, more than 30% of the yield is eaten up by tax“, underlines Alexandre Goldwasser. “However, on the secondary market, we find zero-coupon bonds from companies with a comparable risk profile, such as Volkswagen, whose net yield is well above 4%.” This is food for thought for those who consider the right time to invest in bonds.
Come to Finance Avenue
Finance Avenue, the big money fair organized by L’Echo and L’Investisseur, will take place on Saturday November 18. Experienced or budding investors, you will be able to receive a lot of advice on your investments in stocks, bonds, funds and even trackers. You will also be able to listen to and meet specialists in wealth planning, taxation and real estate.
???? Register for free here.
The summary
The success of the bond issues of UCB and Proximus might give ideas to other companies.Corporate spreads are low: they may be tempted to issue bonds.For individuals, bonds are also attractivegiven the level of rates. Depending on their needs, the investor can subscribe on the primary market or buy on the secondary market.
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