After years of lean times, bonds are on the rise. The rise in interest rates in 2022 has brought this somewhat forgotten category of investments back to the forefront. “We have returned to normal rate levels, which we have not seen for around ten years,” notes Philippe Vantrimpont, bond product specialist at asset manager Oddo BHF Asset Management. German ten-year debt thus pays around 2.90% per year, that issued by good quality European companies (investment grade) evolves between 4.5% and 5%. As for the high yield segment, or high yield, which covers riskier companies, it currently yields between 7% and 8%. “Bonds are regaining their role in a portfolio, namely delivering a return which also makes it possible to absorb shocks on riskier assets,” continues Philippe Vantrimpont.
Traditionally, savers can bet on this market using funds made up of several dozen different bonds. Currently, a very specific category is popular: target date funds. Their specificity? They have an end date, and therefore a limited lifespan. Most of the products in circulation have a maturity between 2026 and 2030. Their operation is therefore very close to that of a direct bond, which gives better clarity to your investment: you lend money, you receive interest and you get your money back after a few years.
“In addition, the risk of the fund is decreasing since as we get closer to the maturity, the hazard is reduced,” underlines Philippe Vantrimpont. The threat of company bankruptcy, in particular, is lower over a short time horizon. Finally, these funds often display a target rate of return upon subscription. “This is valid for quality securities, less so for high-yield speculative bonds, because, in this segment, the borrowing company can decide to repay its loan early, so there is more movement in the portfolio” , explains the Oddo BHF expert.
The success of these products gave ideas to an ETF (exchange-traded fund) manager, the company iShares, a subsidiary of BlackRock. In September, it marketed a whole range of bond ETFs with maturity on issuers investment grade. “They replicate market indices segmented by maturity date and allow exposure to all the companies in these indices,” relates Bettina Mazzocchi, head of iShares & Wealth for France, Belgium and Luxembourg at BlackRock. In addition to reduced costs, these products display unbeatable accessibility since they can be subscribed for 5 euros.
If collective vehicles are favored, it is because direct bonds are difficult to access. To acquire debt issued by a CAC 40 company, you generally have to pay 100,000 euros. And the choice offered by brokers is very limited. Some insurers do include obligations in their contracts, like Cardif, which last spring created a unit of account backed by a Renault bond. But this possibility is reserved for high-end life insurance.
Another option: the offer from the broker Trade Republic, which has been offering access to 500 bonds – government and corporate – from 1 euro since the start of the school year. It is, in fact, a matter of acquiring fractions of bonds, which give the right to a share of the interest proportional to the stake. “We defined the universe of eligible securities according to two criteria: the quality of the issuer and the liquidity of the securities,” indicates Matthias Baccino, director of European markets at Trade Republic. You can then create your own diversified portfolio, “and choose who you lend to,” points out Matthias Baccino. As for fees, they are limited to brokerage fees – 1 euro per transaction with this actor. The only drawback: these securities can only be held in a securities account, subject to the 30% flat tax.