Analysis & Comment:
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Lloyds 5.375% Sept 2015: 15 June 2010 New retail-targeted bonds are sadly all too rare in the sterling market. So it is good to hear that Lloyds TSB is launching a new £50 million issue, aimed fairly and squarely at the investor on the metaphorical Clapham omnibus. The bond will hit the streets this week and should be easy to purchase in relatively small sizes (unlike the vast majority of new issues). Here are the details of this instrument:
So is the Lloyds bond new bond good value? At par, the bond will yield 5.375% and pays this coupon in two semi-annual instalments (a plus for income investors). That kind of yield certainly beats deposit accounts and offers a chunky margin of 3% above gilts of the equivalent maturity. I am not aware of any directly comparable Lloyds bond currently trading in the secondary market, but a reasonable comparison would be the RB53 "Royal Bond" issued last year. This was a six-year issue with a 5.3% coupon and now trades at a small premium (after adjustment for the "dirty" price). The bond also looks good compared to the average yield of 3.5% calculated from the mid prices of 5-year maturity bonds currently trading on the Bondscape system. My view: The Lloyds 5.375% September 2015 is a buy. In a low interest rate environment, 5.375% is a decent enough yield for a senior investment-grade bond. The five-year-plus maturity is also just on the sweet spot, enabling the bond to held within an ISA account for tax-free income. The primary issue is being aimed at retail investors via a selling group of stockbrokers and wealth manager. As we saw from the recent Provident Financial issue, this will likely ensure good demand. Investors will also be able to buy the bond via stockbrokers accessing the Bondscape system from the 16th of this month. Mark Glowrey Disclaimer
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