Bond Watch: retail bond offers 6.25% as bond boom continues

Sam Benstead breaks down the latest news affecting bond investors and income seekers.

Welcome to interactive investor’s ‘Bond Watch’ series, covering the latest market and economic news – as well as analysis – that is relevant to bond investors.

Our goal is to make the notoriously complicated world of bond investing simpler, by analysing the week’s most important news and distilling it into a short, useful and accessible article for DIY investors.

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Here’s what you need to know this week.

Higher yields draw investor cash

Investors are flocking to bond funds to tap into the higher yields on offer as a result of central bank interest rate rises.

Calastone, which monitors investment flows, found that UK investors added £1.2 billion to bond funds in January, the second-highest ever inflow after the £1.6 billion added in May 2018.

Bond funds have taken in net £3.8 billion of new assets over the past 12 months, while equities have shed £6.6 billion.

Investors are being tempted into bonds due to high yields. Corporate bonds issued that pay investors in pounds yield about 5%, while UK government bonds (gilts) yield around 3%. Moving higher up the risk spectrum gives investors even higher yields.

• Bond Watch: what 4% interest rates mean for your investments
• Benstead on Bonds: where to find the best yields in 2023

Edward Glyn, head of global markets at Calastone, said: “Fixed income certainly looks [more] attractive today. Bonds are now offering the best yields in over a decade and this is clearly tempting investors keen to lock them in.

“Central banks are still raising policy rates, though dovish comments from the governor of the Bank of England have also raised hopes that the UK’s rate-tightening cycle is at or near its peak.”

Retail bond offers 6.25%

Rising bond yields are also spreading into bonds offered directly to DIY investors, with a new bond offering 6.25% annual return, maturing in March 2029. The bonds will make interest payments twice  a year on 7 March and 7 September, with the first coupon payment being made on 7 September 2029. 

The Royal Masonic Benevolent Institution Care Company 6.25% Sustainable Bond is available to buy until 28 February, with a minimum £500 investment and then available in multiples of £100.

The Royal Masonic Benevolent Institution Care Company is a charity providing residential care, nursing care and residential dementia support to more than 1,000 older people across 17 care homes in England and Wales.

• Bond Watch: how will fixed income perform in 2023? 
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It dates back to 1842 and was originally established with philanthropic funds from the Freemasons to care for older Freemasons and their families, but is now open to the wider community. The bond will enable care providers to invest in building new homes and bringing existing ones up to modern standards to support the provision of quality care.

As with all retail bonds, investors must do their own research. A number of such bonds have gone bad, holding back payments, including those issued by rugby club Wasps and Eros Media World, a Bollywood production company.