Provident Financial launches inflation-beating bond paying 7%
Provident Financial has unveiled an inflation-beating bond paying a coupon of 7%.
The five-year corporate bond will pay the interest twice-yearly in April and October. The bond will mature on 4 October 2017.
Provident Financial is rated BBB by credit ratings agency Fitch, which means it is still investment grade, although the rating does mean that the company is slightly more vulnerable to a default.
Philip Wong, stockbroker at Redmayne-Bentley, which will be distributing the bond, says inflation-beating corporate bonds have been very popular with investors over the past year.
Applications for the bond close on 30 March at 10am, although Wong highlights that high demand may lead to the deadline being brought forward. It is available from stockbrokers and wealth managers.
The Consumer Prices Index measure of inflation stood at 3.6% in January, down from 4.2% in December. The Retail Prices Index, which includes mortgage interest payments, fell from 4.8% to 3.9% in January.
This article was written for our sister website Money Observer
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Corporate bonds are one of the main ways companies can raise money (the other is by issuing shares) by borrowing from the markets at a fixed rate of interest (the reason why they are also known as “fixed-interest securities”), which is called the “coupon”, paid twice yearly. But the nominal value of the bond – usually £100 – can fluctuate depending on the fortunes of the company and also the economy. However it will repay the original amount on maturity.