FIIG’s floating rate notes

Key points:

1. FIIG offers 66 wholesale corporate bonds through its DirectBonds service.
2. There are 34 fixed rate bonds, 29 floating rate notes, two are indexed annuity bonds and one is a capital indexed bond.

There are 66 corporate over the counter bonds available to wholesale investors. Twenty nine of those bonds are floating rate notes available in parcels ranging from $10,000 to $500,000. There are 34 fixed-rate bonds, 29 are floating-rate notes, two are indexed annuity bonds and one is a capital-indexed bond.

All investors are presumed to be retail investors unless they can prove they are wholesale (sophisticated or professional). Please see the “Are you retail or a wholesale Investor” article. 

The list below details the 29 wholesale floating-rate corporate notes available. It shows the diversification possible with bonds available across industries and bond type. Thirteen are senior debt while 12 are subordinated debt. The subordinated debt is from the following issuers:

• Insurance Australia Ltd
• HBOS Plc
• Westpac Banking Corporation
• Bank of Queensland Ltd
• Genworth Financial Mortgage
• AMP Bank Limited
• National Australia Bank
• HSBC Bank Australia Ltd
• The Royal Bank of Scotland.

Twenty one securities were issued by authorised deposit taking institutions (including international banks, major and regional banks), three were issued by the insurance sector, two securities belong to “other financials” sector, while “other corporate”, property and infrastructure issued one floating rate note each.

Table 1

You can choose to hold the bonds until maturity and receive the face value at that date or you can sell them prior to maturity, which may result in a higher or lower return than anticipated when you acquired the bonds.

Common terms

Call date - the date prior to maturity on which a callable bond may be redeemed by the issuer. If the issuer determines there is a benefit to refinancing the issue, the bond may be redeemed on the call date, at par, or at a small premium to par depending on the terms of the call option.

Capital indexed bonds (CIB) – CIB’s pay a predetermined coupon based on a capitalising principal amount where the capitalisation is a function of inflation. At maturity the investor receives the capitalised face value

Capital price – also referred to as “clean price” and does not include any accrued interest.

Face value - is the initial capital value of the bond and the amount repaid to the bondholder on its maturity, usually $100.

Indexed annuity bond (IAB) – an IAB is an annuity structure where each periodic payment includes a combined coupon and principal component, known as the “base payment”. The base payment is adjusted for inflation.

Maturity - this is the date when the bond is due for repayment by the issuer. The principal plus any outstanding interest of a particular security will be repaid on this date.

Running yield - uses the current price of a bond instead of its face value and represents the return an investor would expect if he or she purchased a bond and held it for a year. It is calculated by dividing the coupon by the market price.

Yield to maturity - the return an investor will receive if they buy a bond and hold the bond to maturity. It is the annualised return based on all coupon payments plus the face value or the market price if it was purchased on a secondary market. Yield to maturity thus includes any gain or loss if the security was purchased at a discount (below face value) or premium (above face value). It refers to the interest or dividends received from a security and is usually expressed annually or semi-annually as a percentage based on the investment’s cost, its current market value or its face value. Bond yields may be quoted either as an absolute rate or as a margin to the interest rate swap rate for the same maturity. It is a useful indicator of value because it allows for direct comparison between different types of securities with various maturities and credit risk. Note that the calculation makes the assumption that all coupon payments can be reinvested at the yield to maturity rate. Also, the yield and coupon are different.

If you would like to learn more about bonds, or to discuss possible strategies, please contact your local dealer.

Note: prices and yields are accurate as at 4 April 2014, and are guide only and subject to market availability. FIIG doesn’t make a market in these securities.