Investec prefs

[Kr1ck]

Can anyone explain to me what is happening with these bonds? A year ago with interest rates at 1.75%, yielding 4% they were priced at 600. Now with interest rates about to hit 4% they are 500 and a prospective yield nearing 10%. It makes no sense to me.

[GoSeigen]

Can anyone explain to me what is happening with these bonds? A year ago with interest rates at 1.75%, yielding 4% they were priced at 600. Now with interest rates about to hit 4% they are 500 and a prospective yield nearing 10%. It makes no sense to me.

Probably because I opened my mouth and said they were an interesting option. They’ve fallen ever since. Fortunately I’d trimmed a bit so happy to buy more…

Seriously though perhaps falling rates being priced in in anticipation?

GS

[Kr1ck]

Another case of 'rational markets'. Well I'd buy more if it weren't for the horrific spread I was offered last time.

[Kr1ck]

Yield now 9.5%. The market seems to be saying that interest rates have topped out but happy to hold as I don't see them declining rapidly either.

[Kr1ck]

Interest rates now 4.25% and you guessed it, the price of the bonds have fallen. Yield now 10.5% +
Haven't got a clue how these are being valued but I picked them up cheap after the 2008 crash as an inflation hedge but happy to hold for the yield.

[OldBoyReturns]

Can anyone explain to me what is happening with these bonds? A year ago with interest rates at 1.75%, yielding 4% they were priced at 600. Now with interest rates about to hit 4% they are 500 and a prospective yield nearing 10%. It makes no sense to me.

It's the market pricing in expectation of falling / lower future interest rates. These have a floating coupon. I think base rate + 3% but that is from a distant memory so double check.

[BullDog]

INVR has gone ex dividend today and the share price dropped accordingly. I know very little about this asset class but I'm wondering if there's an opportunity to buy in here while interest rates seem yet to reach their peak? Another 1% seems probable on base rate by year end.

There's a whopping buy/sell spread on INVR that would eat into the first dividend paid. But if the interest rate cycle turns, there might be some capital appreciation to sell into having harvested the yield meantime? The known unknown is how UK inflation behaves short to medium term.

Am I barking up the wrong tree here thinking there is an opportunity for a small investment? Thanks for the insight.

[monabri]

There's a whopping buy/sell spread on INVR that would eat into the first dividend paid.

Ditto on GACA/GACB. The spread more or less takes the first dividend. I actually made a top up of GACx prefs this week, adding GACB (I know GACA was mentioned a few days ago!).

[BullDog]

There's a whopping buy/sell spread on INVR that would eat into the first dividend paid.

Ditto on GACA/GACB. The spread more or less takes the first dividend. I actually made a top up of GACx prefs this week, adding GACB (I know GACA was mentioned a few days ago!).

Thanks for that. I'll have to refresh my memory about GACx. I held GACA for a while last year/early this year largely prompted by skyship's suggestion there was good value there. It was a decent short term return. I don't recall the spread being so onerous there but I likely just don't remember.

Will have to keep an eye on INVR, but I don't know enough about it beyond to my untrained eye it looks interesting. Perhaps?

Edited to add - a quick check suggests buy/sell spread on GACA today around 3% and around 6% on INVR. That's a big disincentive if it's not a longer term purchase.

[monabri]

Ditto on GACA/GACB. The spread more or less takes the first dividend. I actually made a top up of GACx prefs this week, adding GACB (I know GACA was mentioned a few days ago!).

Thanks for that. I'll have to refresh my memory about GACx. I held GACA for a while last year/early this year largely prompted by skyship's suggestion there was good value there. It was a decent short term return. I don't recall the spread being so onerous there but I likely just don't remember.

Will have to keep an eye on INVR, but I don't know enough about it beyond to my untrained eye it looks interesting. Perhaps?

Edited to add - a quick check suggests buy/sell spread on GACA today around 3% and around 6% on INVR. That's a big disincentive if it's not a longer term purchase.

INVR...yield ~6% and now XD (21.58904p Final) and, as you say, looks to be a 6% spread. Have a look at the shareprice history , 5 year view.


GACB, goes XD start of September. Yield 7.22% based on 109p (GACB 7 7/8%). I've used the "buy" price as reported by HL. Have a look at the shareprice history , 5 year view.

https://www.hl.co.uk/shares/shares-sear ... irrd-prf-1

[GoSeigen]

Please keep it on topic fellas. GACA is not remotely comparable to these Investec preference shares. INVR coupons are directly liked to the UK base rate and its price movement and therefore return profile will radically different to that of typical FI products like GACA.

Welcome to start a separate thread on GACA, I think there was one running fairly recently on this board.


GS

[GoSeigen]

Edited to add - a quick check suggests buy/sell spread on GACA today around 3% and around 6% on INVR. That's a big disincentive if it's not a longer term purchase.

Not sure where you're getting your spread figures from -- I make it just over 2% for INVR at Hargreaves Lansdown. (511p-522p)


GS

[BullDog]

Edited to add - a quick check suggests buy/sell spread on GACA today around 3% and around 6% on INVR. That's a big disincentive if it's not a longer term purchase.

Not sure where you're getting your spread figures from -- I make it just over 2% for INVR at Hargreaves Lansdown. (511p-522p)


GS

Thanks. It was HL yaterday and was 505 v 535 spread. Obviously, it's moving all the time and timing is of the essence in that respect.

[Dicky99]

Edited to add - a quick check suggests buy/sell spread on GACA today around 3% and around 6% on INVR. That's a big disincentive if it's not a longer term purchase.

Just checked on II and it quotes 115/118 spread but when actioning a trade it gives a buy price of 116p which is less than 1%

[BullDog]

Edited to add - a quick check suggests buy/sell spread on GACA today around 3% and around 6% on INVR. That's a big disincentive if it's not a longer term purchase.

Just checked on II and it quotes 115/118 spread but when actioning a trade it gives a buy price of 116p which is less than 1%

Thanks. That'll perhaps explain why when I bought and sold GACA late 22 and early 23, I wasn't put off by the spread. My main account is with II.

[Kr1ck]

Don't forget that the dividend of Base + 1% is (i.e. 6%) based on the issue price of £10. INVR is currently trading at £5.50 so the yield is 10.9% . There really hasn't been a proper revision of the price of these bonds in line with increasing interest rates. The market has held the view throughout the rises that interest rates have peaked. Hence the price is broadly similar to the price when the interest rate was 1.5%. It seems the market hates being wrong and its going to hold out until it's right (even if that's years away!).

[GoSeigen]

Don't forget that the dividend of Base + 1% is (i.e. 6%) based on the issue price of £10. INVR is currently trading at £5.50 so the yield is 10.9% . There really hasn't been a proper revision of the price of these bonds in line with increasing interest rates. The market has held the view throughout the rises that interest rates have peaked. Hence the price is broadly similar to the price when the interest rate was 1.5%. It seems the market hates being wrong and its going to hold out until it's right (even if that's years away!).

Kr1ck I agree with you that these are mispriced and have added a few recently. With 11% yield the price is way below the 1000p issue price when base rates were last at current levels. Even stranger, those prices were set in a falling inflation / falling interest rate environment whereas now rates and inflation seem to have turned up so these shares should be in even more demand.

Pricing probably reflects 1. an expectation that base rates will be lower than inflation (though even that should be bullish for the price because it implies higher rates later) and 2. investor hope that inflation is short-lived and the ultra-low rates of the last decade will soon return.


Fortunately us doubters have an excellent yield in INVR to compensate us for our heresy.


GS

[Kr1ck]

Thank you GoSeigen, I thought I was missing something backing these, glad to have at least one other Fool onboard. I think I'll buy a few more at this yield. It seems to me the market is looking ahead but only in the negative sense. Price hasn't risen because the market has decided that rates have peaked while watching rates climb from 0.1 to 5.5 %! Maybe I'll use it as a proxy for rates having peaked when the price starts to go up!

[88V8]

Available through ii at 570p for a yield of 11% exc costs.

V8

[OldBoyReturns]

The terms of the Invested Perpetual Preference Shares (INVR) are in the Investec plc Articles of Association which are online (page 65) at:

https://www.investec.com/content/dam/in ... 202020.pdf

At the current price (I have managed to buy decent chunks at 573 to reinvest some of the BOI tender offer proceeds) they look decent value with the dividend accruing at a rate of 6.5% (current BoE Base Rate + 1%) on face value of £10 per share.