The Lemon Fool

Hi, newbie to bonds here.

Perhaps someone could help me out regarding the Lloyds Bank bond (94HJ), its coupon rate is 9.625%, paid annually with a maturity date of 6th April 2023. Issue price was 101.85p.

The LSE website (link below) has all the details and shows a YTM of 1.702%. Can anyone explain why it's that low ? I was expecting something north of 6%.

https://www.londonstockexchange.com/sto ... mpany-page

Many thanks.

Closing price was 102.05

y0rkiebar wrote:The LSE website (link below) has all the details and shows a YTM of 1.702%. Can anyone explain why it's that low ? I was expecting something north of 6%.

https://www.londonstockexchange.com/sto ... mpany-page
.

Look at the quoted spread, currently (Monday close presumably) showing as 99.30 / 104.8. The yield to a purchaser would be determined from the offer price.

Alaric wrote:Look at the quoted spread, currently (Monday close presumably) showing as 99.30 / 104.8. The yield to a purchaser would be determined from the offer price.

It's still way off the mark though isn't it ? I must be missing something.
Issue price was 101.85p

y0rkiebar wrote:
It's still way off the mark though isn't it ? I must be missing something.

Would you also have to buy the accrued interest? If it's paid annually that's half a year's worth.

Alaric wrote:

y0rkiebar wrote:
It's still way off the mark though isn't it ? I must be missing something.

Would you also have to buy the accrued interest? If it's paid annually that's half a year's worth.

Now that would explain things, as mentioned I am a bond newbie so am not familiar with purchases post the anniversary date and what happens re: accrued interest.

You need to be very careful when bonds are in their last year. Small changes in buying price and the charges made by your broker for dealing can have a big effect on your YTM.

I haven't really looked closely at this but also bear in mind that it pays one coupon per year so as well as the cost of the bond you are also having to stump up 6 months of coupon already earned which you will receive on maturity.

I think you should forget about the issue price (you say it was 101.85p). What you need to know is what the par value is - without looking I'm guessing that is likely to be 100p.

If you haven't already, you should use a bond yield calculator or IRR calculator (both available within MS Excel).

There are better options out there (in my view) if what you are looking for is a fairly short term place to park some money.

Thanks. I hadn't appreciated the costing of the already accrued interest for the final period to maturity. Had assumed the coupon income was like receiving a full dividend when purchasing a stock pre ex-div date.

Laughton wrote:There are better options out there (in my view) if what you are looking for is a fairly short term place to park some money.

Cheers, any options you could share ?

The problem is that I may well be prepared to take on more risk than you so my choices wouldn't/shouldn't be yours.

Looks to me as though we are not at the top of the interest rate cycle so I'm holding back money in the hope that prices of FI drop further.

There was a time when I could look up gilt prices and yields and buy say three years out at maybe 89 or so with a nominal coupon of 5%. I used to do quite a lot of that but I think it was the financial crisis of 2008/9 which put paid to it. Good stuff while it lasted.

Dod

Dod101 wrote:There was a time when I could look up gilt prices and yields and buy say three years out at maybe 89 or so with a nominal coupon of 5%. I used to do quite a lot of that but I think it was the financial crisis of 2008/9 which put paid to it. Good stuff while it lasted.

IFor someone interested in gains rather then income, there are very low coupon bonds with short maturities that now stand a bit below par. I'm thinking of coupons of 1/2%. Government Bonds are outside the scope of CGT and very low coupons won't trigger much if any Income Tax.

Alaric wrote:

Dod101 wrote:There was a time when I could look up gilt prices and yields and buy say three years out at maybe 89 or so with a nominal coupon of 5%. I used to do quite a lot of that but I think it was the financial crisis of 2008/9 which put paid to it. Good stuff while it lasted.

IFor someone interested in gains rather then income, there are very low coupon bonds with short maturities that now stand a bit below par. I'm thinking of coupons of 1/2%. Government Bonds are outside the scope of CGT and very low coupons won't trigger much if any Income Tax.

I must take a look.

Dod

Another thing to be wary of (as I think you've noticed) is the YTM figure shown on the LSE website.

As far as I can make out that's based on the prices shown but those should be taklen with a pinch of salt. You need to use the actual price that you are able to purchase the bond in question and that's often within the spread shown.

For example - 66WS. Today LSE shows that at 93.90 to sell and 97.50 to buy and a YTM of 5.17%.

Maybe someone more knowledgeable than me can explain how they come to that YTM because I make it much closer to 8% on a buy price of 97.50 and over 10% based on the 95.41 that I paid just a few days ago.

Laughton wrote:Another thing to be wary of (as I think you've noticed) is the YTM figure shown on the LSE website.

As far as I can make out that's based on the prices shown but those should be taklen with a pinch of salt. You need to use the actual price that you are able to purchase the bond in question and that's often within the spread shown.

For example - 66WS. Today LSE shows that at 93.90 to sell and 97.50 to buy and a YTM of 5.17%.

Maybe someone more knowledgeable than me can explain how they come to that YTM because I make it much closer to 8% on a buy price of 97.50 and over 10% based on the 95.41 that I paid just a few days ago.

Indeed, and so does https://quantwolf.com/calculators/bondyieldcalc.html, and a couple of other online calculators concur (that one is particularly useful 'cos it lets you specify the maturity date, rather than just asking years to maturity as many do).

And in fact it's obvious just by eyeballing that, on the LSE's presented prices, the YTM of 5.17% is wrong. There is almost exactly a year to maturity (9-Oct-23) and with a coupon of 5.125% you will get that much to start, and then there's the uplift, assuming* par of 100 at the currently shown offer price of 97.50 there'll clearly be another a tad more than 2.5% on top of the coupon return, so I can't see how LSE gets a YTM of just 5.17%.

Here's the link in case anyone else wants to try and figure out why ... https://www.londonstockexchange.com/stock/66WS/provident-financial-plc/company-page

* I'm not familiar with the bond and haven't tried to lookup the redemption price.

Hello

I too am a newbie to bonds and whilst screening the bond market this bond came up

We're now less than a month away from maturity

Am i right in saying that when this matures, the 9.625% coupon will be paid to whomever owns the bond?

Or do you accrue the interest for however long you held it for (that sounds awfully complex though determining who owned it for what period)

If it's the former, if you buy it now with a buy price of 101.5. That's a 9.5% return in a matter of days.. which seems incredible!

If you buy the bond, you’ll have to pay for the interest accrued up to when you buy it. So you’ll only earn interest from then till maturity or when you sell it. It’s different to dividends on shares.

Thanks

How do you pay for the accrued interest to date?

Via the price you pay for the bond?

A reduced coupon payment? (Relative to ownership term)

Or other?

Securevalue wrote:
How do you pay for the accrued interest to date?

Via the price you pay for the bond?

It will be added to the price you pay, but separately itemised because of the way the tax liability is calculated,

I will be buying through a third party, say Hargreaves Lansdown

Right now the buy price is 101.50

So if i bought 10k bonds it would cost £10,150

Would i therefore qualify for the full 9.625% (£962.50)

Or would Hargreaves Lansdown somehow reduce my coupon payment to reflect only holding the bond for a month

Appreciate your help