Last week we saw several new issues in the corporate bond market, which highlighted the exceptional value in short-dated investment-grade bonds.
Both HSBC and Barclays issued short-dated, US dollar-denominated, senior ranking bonds at historically highly attractive yields. Both were issued with coupons of around 7.3% (HSBC 7.336% and Barclays 7.325%), and at spreads over US Treasury bonds of approximately 300 bps. The yield in sterling terms would be broadly similar, at around 7.25%.
These bonds are due to mature in November 2026, with the option for the banks to redeem a year earlier in November 2025. Of the two, we favoured the HSBC bond and purchased it for our global short-dated climate transition strategy.
HSBC bonds are rated Aa3 by Moody’s. Opportunities to lend to such high-quality borrowers for only 3-4 years at such attractive yields are extremely rare.
At some point in the next three months we expect the market to price-in the top of the US interest rate cycle, after which point we should see yields on short-dated investment grade bonds begin to fall. Indeed, in the UK we may already have seen the peak in market expectations of where base rates could get to.
For now, we see a real opportunity for investors to access high-quality, short-dated fixed income.
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