Analysis & Comment  > Bond of the Week

Share |
Back to 2013

Bond of the Week: 20 September 2013

Aviva 6.125% 2036


Going through our new ORB bond universe we take a look at the Aviva 2036 6.125% bond.  There are 23 years to maturity a respectable coupon, trading around par at 101.215 with a yield of 5.569.  Extendible with coupon reset at issuer's option and callable at 2026.  We highlight this bond as it ranks in the top five if sorted by yield.  The others included have all been well covered recently and include the Enterprise Inns 2018 6%, International Personal Finance 6.125% 2020, Paragon 2020 6% and ICG 2020 6.25% (the 7% is trading near historic highs at the moment).  As the bond is subordinated debt it is expected that the credit ratings will be lower with a higher yield, although within the specialist finance sector it ranks higher than the ICG 6.25% and 7% (S&P BBB-) but lower than the S&P rated L&G’s Fitch A rated  5.875% 2031.  There are a couple of negative issues such as being subordinated the debt ranks lower should the company fail and the £10,000 minimum denomination.

Terms of the bond
Maturity: 2036
Callable: 2026
Coupon: 6.125%
Rating: S&P BBB, Moody’s Baa1
ISIN: XS0138717441
Listing: ORB (LSE)
Denominations:  £10,000

Comparative to the FTSE ORB index the bond has generally pre-performed the market rising at a greater rate since November 2011, before the market retracted in May 2013.  In  fact the bond price tends to mirror the FTSE 100 index rather than the ORB (2 year charts below)

The underlying share price has recently broken through the recent resistance levels around 380, and is no longer showing signs of being overbought suggesting that it has further to go on the upside.  As with the Insurance sector in general the price momentum is strong in this one with potential to rise above 1800.

The Aviva bond ended its bull run near 109. Indicators were extremely overbought and a sharp sell off occurred in response. Note that the RSI had become deeply oversold before the recovery from around 94 began.

More recently, the bond has become stuck in a sideways ranging pattern, between approximately 92.5 and 101.5. The upper boundary is under pressure. Should it yield, bulls will aim for the previous highs near 108 and 109.

Disclaimer is a division of Stockcube Research Ltd which is authorised and regulated by the Financial Services Authority. The research provided by Stockcube on the Website (and any other Stockcube website) is provided solely to enable investors to make their own investment decisions and does not constitute personal investment recommendations. No recommendations are made directly or indirectly by Stockcube as to the merits or suitability of any investment decision or transaction which may result directly or indirectly from having viewed the investment research on the Website or having received it by email. Investors are therefore urged to seek independent financial advice if they are in any doubt. The value of investments and the income derived from them can go down as well as up, and the investor may not get back the full amount originally invested.

Bonds, as with all investments, are subject to price volatility and in the event of a default an investor may lose some or all of his or her original investment. This site also contains references to derivatives. These are particularly high risk, high reward investment instruments and an investor may lose more than his initial margin requirement. Some foreign currency instruments are also featured and if an investor decides to acquire any investment denominated in a currency different from the his or her own,  the investor should note that changes in foreign exchange rates may have an adverse effect on the value, price and income of the investment in the base currency.

None of the services provided as a result of this agreement constitutes a personal recommendation to invest from Stockcube and no service should be construed as such.  For the avoidance of doubt, where the word “recommendation” is used elsewhere in these terms it does not refer to a personal recommendation, unless this is explicitly stated.  The investments described by or in the services are not suitable for all investors. Investors  who have any doubt about whether particular investments are suitable for them should contact an independent financial adviser.

These services do not include personal investment recommendations from Stockcube and should not be construed as such. Stockcube may, at its discretion, provide information, advice, recommendations and research to subscribers from time to time on its own initiative or advise subscribers of other services available. Stockcube will be under no obligation to provide on-going advice in relation to financial instruments covered on this website.