Saturday, January 12, 2013

Newbie's bond portfolio - Trade #7

I bought USD100k notional of Cloverie PLC 8.25% USD Perp (Secured by bonds issued by Zurich Insurance) as my seventh trade.

At a client price of 116.15, it works out to:
YTM = 7.01%
YTC (first call date 18th January 2018) = 4.60%

I will be using USD loans 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 = 29.03%
Leveraged YTC = 16.97%

Rationale for purchase:
The recent run-up of bonds is astounding, yet I cannot leave my portfolio idle waiting. Time is money and waiting means missing out on earning yield. I examined a list of reputable issuers that launched perpetuals from 2012 till now, specifically hunting for one that had a price relatively stable in recent weeks (versus most whose prices have gone up 3-4% in recent weeks).
Cloverie 8.25% Perp stood out as the idle candidate. It was extremely oversubscribed when launched in January 2012 (in fact I had applied for it then, but failed to get any). It opened on Day 1 in the region of 103 based on my memory and slowly crept up to the current price levels over a period of 1 year. Its price had been stable in the 115 region in the past weeks.
This USD perpetual pays 8.25% till 2018 and then resets to 6 year swap rate + 6.84% from 2018-2024 and 6 year swap rate + 6.84% + 1% thereafter.

Zurich Insurance is one of the largest insurers in the world and I believe that it is too big to fail. It has a current Market Capitalisation of CHF38 billion. The coupon structure is very favourable as it resets to buffer for future interest rate hikes. Given Zurich Insurance is subject to Basel/Solvency rules, I believe there is a high chance that this perpetual bond will be called back by Zurich Insurance at par on the first call date.


Wealth Journey said...

Nice! :)
Definitely very good risk/reward ratio for your leverage.

Hope to hear more of bonds you are intending to buy :)

By the way, is that a bloomberg screen? You are working in the financial industry?

Wealth Journey said...

Any good and affordable way to get to those bloomberg bonds details you've got there?

Newbie said...

Hi WJ,

Are u the blogger?

Yes that's a Bloomberg security description screen. I'm a product sales person working in a FI.

Glad to share my purchases on my new demonstration portfolio. Refer to my first few posts to see the rationale n method I'm tracking this new mini portfolio.


Newbie said...

There is no free way to get that screen yourself. Either get while on the job or ask your rm send to u