Monday, August 15, 2016

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Anonymous said...

Latest bond rally eye sore: one for the price of twoThe Bank of England’s recent stimulus splurge, including a move to buy corporate paper, has driven the market prices for several sterling corporate bonds up to more than two times their initial face value, even for those unlikely to qualify for the central bank’s shopping list, writes Joel Lewin.

The price of US industrial conglomerate General Electric’s 2039 sterling bond, for example, has rocketed to a record high of 215.5 pence on the pound. That’s up from 165p at the start of the year and 100p when it was issued in 2009.

The yield has plunged from more than 10 per cent in 2009 to a low of 1.805 per cent.

Coupons aside, paying £215.50 today to be repaid £100 in 2039 amounts to a capital loss of 5 per cent every year for the next 23 years. Tasty.

“It’s another sign of how far central banks have pushed things,” says Luke Hickmore, a senior investment manager at Aberdeen Asset Management.

http://www.ft.com/fastft/2016/08/15/latest-bond-rally-eye-sore-one-for-the-price-of-two/