A Sweet-Spot for Short-Dated Investment Grade Bonds

Bond Market

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.

Important Disclosures
This document is for informational purposes only in connection with the marketing and advertising of products and services, and is not investment research, advice or a recommendation. It shall not constitute an offer to sell or the solicitation to buy any investment nor shall any offer of products or services be made to any person in any jurisdiction where unlawful or unauthorized. Any opinions, estimates, or forecasts expressed are the current views of the author(s) at the time of publication and are subject to change without notice. The research taken into account in this document may or may not have been used for or be consistent with all Aegon Asset Management investment strategies. References to securities, asset classes and financial markets are included for illustrative purposes only and should not be relied upon to assist or inform the making of any investment decisions.

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