Wednesday, December 19, 2012

Newbie's bond portfolio - Trade #2

I bought 2,000 shares of Aviva 8.25% USD 2041 Capital Securities (Ticker: AVV) as my second trade.

At a client price of 27.555, it works out to:
YTM = 7.39%
YTC (first call date 1st December 2016) = 5.36%

I will be using my USD150k cash injected to fully fund the purchase.

Assuming this bond is fully supported by USD loans up till the approved lending ratio, the projected Net leveraged yields are:
Leveraged YTM = 21.11%
Leveraged YTC = 14.33%

Rationale for purchase:
Having injected SGD and USD into the portfolio, I needed a relatively high yield and investment grade security to utilise the USD. I would like to have bought more of this security but the price is a tad too high currently, so I decided to enter USD50k notional size for now, with a view to buy more on price declines.
This USD preferred security pays 8.25% fixed forever.
Aviva is one of the largest insurers in the world and I believe that it is too big to fail. The high coupon of over 8% is sufficient to buffer for future interest rate hikes in my opinion. Given Aviva is subject to Basel/Solvency rules, I believe there is a high chance that this preferred security will be called back by Aviva at par on the first call date.


Aun said...

Hi newbie, how do u borrow usd? what's the lending ratio and interest rate?

Newbie said...


Different banks have different levels. Refer to my answer in my previous post on recommendations.

Aun said...

Hi newbie, so you borrow from standard chartered and trade through their online platform?

Newbie said...

I have done so on a small scale so I know it can be done. Friends have highlighted Interactive Brokers as an alternative. These are retail options.

Once u can exceed Usd 1 million, go for private banks.