In a higher rate environment, investors are looking more closely at the bond market, dormant for years. In 2023, rising expectations about peak interest rates have stimulated capital raising through debt instruments in Western economies. Both corporate and government bonds are becoming increasingly attractive investment instruments not only for the retail public.
Corporations, banks and governments have not been disincentivised by rising yields and are continuing unabated with their debt issuance plans. On the other hand, the interest of the retail public seems to have reached record levels: this is demonstrated by the fact that i European bond placements have exceeded €500 billion since January 2023 recording an all-time record.
It is a fact: now bonds have returned to offering attractive yields even over not excessively long time horizons, better protecting investors from possible falls in bond prices. Many realities have therefore decided to expand their debt programs in this 2023. It is an example of this Societe Generale which has planned a new issuance this week following the launch of a euro mixed-rate bond at the end of February.
This time it is a fixed rate bond (ISIN XS2593160141) with an 18-month maturity denominated in euro, listed on the EuroMOT of Borsa Italiana and with a nominal value of 1,000 euro.
The main features
The peculiarity of this product is the fixed rate. Each semester, during the 18 months of duration, the bond pays one fixed coupon with a gross annual yield of 3.25% of the nominal value (equivalent to 2.405% net). The three coupons will be paid on 17 September 2023 and 17 March 2024 and 17 September 2024. The latter coincides with the maturity date, the day on which each bond pays, in addition to the last fixed six-monthly coupon, a gross redemption amount equal at 100% of the nominal value.
It is also noted that during his lifetime, the market value of the bond may differ from the face value. The investor will then be able to purchase the bond at prices lower or higher than the nominal value, the repayment of which is guaranteed only at maturity.
The benefits and risks
The main benefits of this product lie primarily in the full capital protection, as the bond gives the right to a repayment amount at maturity equal to 100% of the nominal value. In addition, the semi-annual coupons guarantee a periodic cash flow during the 18 months of life of the instrument.
The financial solidity of the guarantor Société Générale, which has been assigned Investment Grade ratings by S&P, Moody’s and Fitch, should also be underlined. In particular, the three agencies assigned ratings of A, A1 and A respectively, confirming a remote insolvency risk.
Another strong point concerns the intraday liquidity. Société Générale, in its capacity as the entity responsible for managing the secondary market for bonds on EuroMOT, provides intraday purchase and sale prices for bonds starting from the relevant date of admission to trading.
The main risks are the usual ones for an instrument of this type. First, the full principal protection is only valid if the bond is held to maturity. There is therefore a risk of potential loss by exiting your investment early. The investor is subject to the credit risk of the Société Générale issuer. Finally, it should be remembered that the bond does not protect against any increases in inflation.