Two exciting new subordinated bonds have been added to the DirectBonds list. An ANZ bond with a very appealing return and a Suncorp bond with an even better one
Over the last few weeks we’ve featured new subordinated DirectBonds and this week we add another two to the available list. We think this level of the capital structure is offering good relative value at the moment. Investors are taking on slightly more risk with a point of non-viability clause, but getting really good returns.
Those that are prepared to go long would be hard pushed to better the risk/return equation offered by the ANZ floating rate bond with a first call in May 2021 offering a yield of 3 month BBSW + 230 basis points or 4.86% yield to call.
While the sub-debt offered by insurers differs in its structure – make sure you’ve checked the details on the Factsheets – all three in the table below are solid investment grade. My pick would be the IAL, with just over three years until first call and yield to call of 4.69%. I think this is terrific value.
The last two bonds in the table from APRA regulated Authorised Deposit Taking Institutions (ADIs) Bendigo and Adelaide Bank and ME Bank are fairly standard in structure but are higher risk than the ANZ but with shorter first call dates.
Please note: You can click on the issuer name for the corresponding factsheet. These bonds are available to wholesale investors only, with minimum $10,000 face value parcels.
*First $10,000, then in $1,000 denominations
What is subordinated debt?
Subordinated debt (also known as Tier 2 capital) ranks below senior unsecured debt in the capital structure. While it is typically callable, meaning that there is a chance it can be extended past its first call date, subordinated bonds must have a legal maturity date, unlike Tier 1 hybrids. Also, interest payments are for the main part mandatory and in the unlikely event that the financial institution in question can defer an interest payment, any missed payments are cumulative, again unlike Tier 1 hybrids.
Note: Subordinated bonds are only available to wholesale investors. Please contact your FIIG representative for more information.