There are literally thousands of bonds available in the global market and most of them are rated investment grade by the ratings agencies
An investment grade credit rating tells investors’ a company is strong and it gives them confidence to lend.
The higher a company’s rating, the lower the perceived risk to investors and the cheaper it will be for the company to borrow. There are three principal credit rating agencies: Standard and Poor’s, Moody’s, and Fitch. They rate companies and individual securities according to their assessment of their risk.
Bonds are a naturally defensive investment because of their high position in the capital structure. Investment grade bonds are even more so, with the probability of anything going wrong being very low. They give investors a lot of confidence and for that reason should be in every bond portfolio.
The Australian bond market is predominantly an investment grade market with limited sub investment grade or high yield bonds available. In contrast the US market, which is more developed, is split 65/35 investment grade and sub investment grade.
Some bonds have security over specific assets while others have a type of insurance known as a "wrap". Often these wrap clauses will mean the bond gets a higher credit rating and the company issuing the bond can do it cheaper than it could without the enhancement. These features provide added comfort and may not always be adequately priced into the bond.
If you are predominantly investing in bonds to preserve your capital then you should have a high allocation to investment grade bonds of 70% or more depending on your risk appetite.
Because investment grade bonds are such low risk investments you don't need to diversify as much as you would with shares. Some years ago, I suggested a $1 million portfolio in Eureka Report and included a $500,000 allocation to one investment grade bond– a Rabobank fixed rate bond that was trading at a discount - because I liked the risk and reward dynamic. It happened to be rated in the "A" range. It paid coupons (interest payments) as set out in the prospectus and returned capital at first call, just as expected.
Think of investment grade bonds as your bread and butter, the largest component of your portfolio and critical to producing the gourmet sandwich with lots of tasty fillings (the sub investment grade bonds with more attractive returns but also higher risk) to apply sparingly and savour to make the whole.
Below are a number of tables with some investment grade options. If you qualify as a wholesale investor, your smorgasbord is more like Henry VIII's table than for retail investors who are offered a more simple spread.
Wholesale investors can access foreign currency bonds as well as some of the more complex structures such as Residential Mortgage Backed Securities which I don't list here.
Finally, if you haven't already invested in indexed annuity bonds they are worth investigating. Typically they are very low risk investments with great cash flows linked to inflation. Even if you don't want the cashflow, the risk/return equation is sound.
Wholesale Investment Grade Bonds
| Company | Call date | Maturity date | Bond type | Capital structure | Yield to maturity | Income/
Running yield | Capital price | Face value | Capital value |
| AAI Ltd (Suncorp) | 18 November 2020 | 18 November 2040 | Floating | Subordinated Debt | 5.10% | 5.46% | 102.244 | $50,000 | $51,122 |
| Alumina Ltd | | 19 November 2019 | Fixed | Senior Debt | 6.61% | 5.70% | 96.500 | $50,000 | $48,250 |
| ANZ Banking Group Ltd | 17 May 2021 | 17 May 2026 | Floating | Subordinated Debt | 4.62% | 4.89% | 102.037 | $50,000 | $51,019 |
| Apple Inc | | 28 August 2022 | Fixed | Senior Debt | 2.99% | 3.56% | 104.061 | $50,000 | $52,031 |
| Apple Inc | | 28 August 2019 | Floating | Senior Debt | 2.76% | 2.93% | 100.331 | $50,000 | $50,166 |
| Asciano Finance Ltd | | 19 May 2025 | Fixed | Senior Debt | 4.98% | 5.15% | 101.979 | $50,000 | $50,990 |
| Downer Group Finance Pty Ltd | | 11 March 2022 | Fixed | Senior Debt | 4.72% | 4.55% | 98.880 | $50,000 | $49,440 |
| Genworth Financial Mortgage | 3 July 2020 | 3 July 2025 | Floating | Subordinated Debt | 6.14% | 5.85% | 98.857 | $50,000 | $49,429 |
| Glencore Australia Holdings Pty Ltd | | 19 September 2019 | Fixed | Senior Debt | 6.32% | 4.76% | 94.500 | $50,000 | $47,250 |
| Global Switch Property | | 23 December 2020 | Fixed | Senior Debt | 4.17% | 5.75% | 108.741 | $50,000 | $54,371 |
| Heritage Bank Ltd | 24 June 2020 | 24 June 2025 | Floating | Subordinated Debt | 5.63% | 5.75% | 100.743 | $50,000 | $50,372 |
| Insurance Australia Ltd | 19 March 2019 | 19 March 2040 | Floating | Subordinated Debt | 4.34% | 5.04% | 101.646 | $50,000 | $50,823 |
| Lend Lease Finance Ltd | | 13 May 2020 | Fixed | Senior Debt | 4.63% | 5.71% | 105.005 | $50,000 | $52,503 |
| Members Equity Bank Pty Ltd | 29 August 2019 | 29 August 2024 | Floating | Subordinated Debt | 5.21% | 5.04% | 99.090 | $50,000 | $49,545 |
| Morgan Stanley | | 22 February 2018 | Fixed | Senior Debt | 3.60% | 6.92% | 106.604 | $50,000 | $53,302 |
| QPH Finance Co Pty Ltd (Queensland Port Holdings) | | 29 July 2020 | Fixed | Senior Debt | 3.64% | 5.31% | 108.263 | $50,000 | $54,132 |
| Rabobank Netherlands AU | | 11 April 2024 | Fixed | Senior Debt | 3.77% | 4.92% | 111.814 | $50,000 | $55,907 |
| FBG Treasury Australia Pty Ltd | | 7 August 2020 | Fixed | Senior Debt | 3.34% | 3.69% | 101.608 | $50,000 | $50,804 |
| Stockland Trust | | 23 November 2022 | Fixed | Senior Debt | 3.95% | 4.36% | 103.132 | $50,000 | $51,566 |
| Sun Group Finance Pty Ltd | | 8 December 2021 | Fixed | Senior Debt | 3.84% | 4.65% | 105.337 | $50,000 | $52,668 |
| Sun Group Finance Pty Ltd | | 16 December 2024 | Floating | Senior Debt | 4.60% | 4.38% | 100.013 | $50,000 | $50,007 |
Note: Rates accurate as at 18 April 2016 but subject to change
Wholesale Foreign Currency Bonds (USD)
| Company | Rating | Maturity date | Bond type | Yield to maturity | Income/
Running yield | Capital price | Face value | Capital value |
| AXA SA | BBB | 15 December 2030 | Subordinated Debt | 5.04% | 6.30% | 136.500 | $50,000 | $68,250 |
| CBS Corp | BBB | 15 August 2024 | Senior Debt | 2.80% | 3.47% | 106.605 | $50,000 | $53,303 |
| CBS Corp | BBB | 15 August 2024 | Senior Debt | 4.77% | 4.80% | 102.021 | $50,000 | $51,011 |
| Glencore Finance Canada | BBB- | 15 November 2021 | Senior Debt | 5.26% | 5.03% | 98.500 | $50,000 | $49,250 |
| Leighton Finance USA Pty | BBB- | 13 November 2022 | Senior Debt | 4.96% | 5.64% | 105.500 | $50,000 | $52,750 |
| Newcrest Finance Pty Ltd | BBB- | 1 October 2022 | Senior Debt | 4.50% | 4.27% | 98.365 | $50,000 | $49,182 |
| Newcrest Finance Pty Ltd | BBB- | 15 November 2021 | Senior Debt | 4.30% | 4.42% | 100.733 | $50,000 | $50,367 |
| Newcrest Finance Pty Ltd | BBB- | 15 November 2041 | Senior Debt | 6.49% | 6.33% | 90.819 | $50,000 | $45,410 |
| Royal Bank of Canada | A- | 27 January 2026 | Subordinated Debt | 4.00% | 4.42% | 105.208 | $50,000 | $52,604 |
| Telstra Corp. Ltd | A | 12 October 2021 | Senior Debt | 2.17% | 4.23% | 113.500 | $50,000 | $56,750 |
| Vodafone Group PLC | BBB+ | 26 September 2022 | Senior Debt | 2.39% | 2.48% | 100.650 | $50,000 | $50,325 |
| Vodafone Group PLC | BBB+ | 19 February 2043 | Senior Debt | 4.58% | 4.52% | 96.798 | $50,000 | $48,399 |
All wholesale foreign currency bonds are in USD
All bonds listed are fixed
Note: Rates accurate as at 18 April 2016 but subject to change
Retail Investment Grade Bonds
| Company | Call date | Maturity date | Bond type | Yield to maturity | Income/
Running yield | Capital price | Face value | Capital value |
| Australian Government | | 15 April 2020 | Fixed | 1.77% | 4.07% | 110.448 | $50,000 | $55,224 |
| Australian Government | | 20 September 2030 | Inflation linked | 3.16% | 2.00% | 142.710 | $57,110 | $71,355 |
| DBCT Finance Pty Ltd (Dalrymple Bay) | | 9 June 2021 | Floating | 6.13% | 3.09% | 84.903 | $50,000 | $42,452 |
| Downer Group Finance Pty Ltd | | 29 November 2018 | Fixed | 4.09% | 5.53% | 104.061 | $50,000 | $52,031 |
| JEM (Southbank) Pty Ltd | 28 June 2018 | 28 June 2020 | Fixed | 4.25% | 6.33% | 104.931 | $50,000 | $52,466 |
| Praeco Pty Ltd | 28 July 2022 | 28 July 2022 | Fixed | 4.99% | 6.59% | 108.200 | $50,000 | $54,100 |
| Qantas Airways Ltd | | 19 May 2022 | Fixed | 4.71% | 6.69% | 115.904 | $50,000 | $57,952 |
| Qantas Airways Ltd | | 11 June 2021 | Fixed | 4.60% | 6.63% | 113.138 | $50,000 | $56,569 |
| Qantas Airways Ltd | | 27 April 2020 | Fixed | 4.39% | 6.04% | 107.698 | $50,000 | $53,849 |
| Queensland Treasury Corporation | | 14 March 2023 | Fixed | 3.29% | 4.60% | 141.386 | $50,000 | $70,693 |
| Stockland Trust | | 25 November 2020 | Fixed | 3.71% | 6.93% | 119.028 | $50,000 | $59,514 |
| Sydney Airport Finance* | | 20 November 2030 | CIB | 5.96% | 3.25% | 121.985 | $63,545 | $60,993 |
| Sydney Airport Finance* | | 20 November 2020 | CIB | 5.29% | 3.62% | 140.916 | $67,740 | $70,458 |
| Telstra Corp Ltd | | 15 July 2020 | Fixed | 3.19% | 6.57% | 117.920 | $50,000 | $58,960 |
Note: Rates accurate as at 18 April 2016 but subject to change
All bonds listed are senior debt
* Inflation linked bonds
Investment Grade Index Annuity Bonds
| Company | Maturity date | Bond type | Yield to maturity | Income/
Running yield | Capital price | Face value | Capital value |
| Australian National University | 7 October 2029 | IAB | 4.75% | 3.86% | 91.605 | $10,000 | $9.161 |
| Civic Nexus Finance Pty Ltd | 15 September 2032 | IAB | 5.19% | 4.67% | 107.703 | $10,000 | $10,770 |
| JEM NSW Schools II Pty Ltd | 28 November 2035 | IAB | 5.45% | 3.85% | 100.269 | $10,000 | $10,027 |
| JEM (Southbank) Pty Ltd | 28 June 2035 | IAB | 5.76% | 4.41% | 103.411 | $10,000 | $10,341 |
| MPC Funding Ltd (Melbourne Convention Centre) | 31 December 2033 | IAB | 5.17% | 3.87% | 100.884 | $10,000 | $10,088 |
| Novacare Solutions Pty Ltd | 15 April 2033 | IAB | 5.38% | 4.01% | 97.920 | $10,000 | $9,792 |
| RWH Finance Pty Ltd (Royal Women's Hospital) | 30 June 2033 | IAB | 6.04% | 4.28% | 93.547 | $10,000 | $9,355 |
Note: Rates accurate as at 19 April 2016 but subject to change
* Wholesale bonds
If you have any questions please call your local dealer or call us on 1800 01 01 081