FIIG - The Fixed Income Experts

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Yields of some bonds hit the magical 7% - December update

by Elizabeth Moran | Dec 16, 2013

None of us can predict where the markets will be in coming months and years but this week we’ve seen a number of bond yields trade at over 7%, a key return hurdle.

While we typically focus on yield to maturity to compare returns of different bonds, I think investors should also consider bonds with high running yields. Dividend yields on shares only provide an indication of income and so, if you want to compare equity investment to bond investment, running yield is more appropriate as it also shows income.

A legitimate strategy in this current low rate environment is to buy securities with high running yields (and not necessarily the same high yields to maturity) with a view to taking the higher income on offer and selling down the bonds as they near maturity.

Table 1

Six bonds show a yield to maturity of over 7%: the FIIG originated fixed rate Cash Converter’s, G8 Education, Payce and PMP and floating rate Dalrymple Bay Coal Terminal and inflation linked bond, Sydney Airport. If you consider bonds with a running yield over 7%, i.e. the magical number, we can add another two bonds to the list: the fixed rate Silver Chef and Stockland.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities.

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