What a crossing of the desert! For almost ten years, the bond market was battered. Thus, from 2014, the rate of state debt issued by France (OAT), with a ten-year maturity, fell below 2%, before “offering” from 2019 to 2021 rates of negative interest! Never seen. But this period is long gone. In recent months, bonds have become attractive again. Logic. Faced with skyrocketing inflation, central banks raised their key rates, which had repercussions on borrowing rates and bond rates. From now on, OATs with maturity of five and ten years are around 3.2% and 3.4% respectively. Tempting when you’re looking for interesting investments with a view to retirement.
The posted rate of a bond is also linked to the rating obtained by the issuer based on its financial strength, which is published by private agencies. The better the score, the lower the borrowing rate. “A highly rated company, classified as ‘Investment grade’, whose risk is considered low, is currently issuing bonds with a maturity of five years at an average interest rate of 4.5%”, observes Thomas Giudici, head of bond management at Auris Gestion. This is for example the case of TotalEnergies, BNP Paribas or Volkswagen… A notch below in terms of quality is “high yield”. “In this segment, rates are around 5 to 6% for companies like Fnac or Tereos,” continues Thomas Giudici. Finally, for firms presenting additional risk, like BUT or Picard, they are around 7.5 to 8%. .”
For States, local authorities and businesses, the bond market represents in a way the “investor” formula for bank credit. When these actors issue bonds, they choose to go into debt to a multitude of private investors, who become their creditors. The issuers undertake to repay them on a date decided in advance (maturity or maturity date). In the meantime, they regularly pay interest, called coupons, the amount of which will depend on the loan rate (the nominal rate) and the capital invested (the nominal). Thus, by holding a bond, you know in advance the amount of the “rent” that will be paid to you and the date on which the capital you have invested will be reimbursed. Quite practical when you’re looking for regular income for your old age…
But every medal has its downside. Firstly, you expose yourself to the risk of the issuer going bankrupt and being unable to repay your capital. In addition, the entry ticket is high: reaching a minimum of 1000 to 2000 euros, it can exceed 100,000 euros for certain large groups. “The solution then consists of purchasing shares in a bond fund. The minimum investment is around a hundred euros. In addition, it is actively managed by professionals who offer various investment strategies: depending on the sectors, the maturity of the debt or the rating of companies, specifies Hervé Thiard, general manager of the management company Pictet AM France.
As it concentrates a basket of bonds, it also has the advantage of pooling the risk.” As for the coupon, it is either reinvested in new bonds or paid annually into your account – it then corresponds to the average interest received through this basket. An interesting formula for diversifying your assets, while providing visibility on your gains over a long period.