ING rolled one out a month ago and NZ Funds Management already has such a fund in the market place.
Macquarie’s Generator Bonds offer New Zealand investors the highest return currently available for any fixed interest investment with an “Investment Grade” rating. The company says.
It says the Generator Bonds will pay between 7.75% and 8.25% annually, and it has applied to Standard & Poor’s to have the bonds rated.
Macquarie Financial Services Group’s New Zealand boss Craig Swanger says the company expects the bonds will have an A- rating which makes them ‘investment grade’.
Besides having the rating the bonds, which have a five-year term, will also be listed on the NZX debt market, giving the offer liquidity.
“Generator achieves its return by using a CDO, “ Swanger says. “The returns on this type of fixed interest investment are generally higher overseas, so the main challenge has been to bring this offer to New Zealand.”
He says the bonds are a direct investment just like either government or corporate bonds.
“Investors receive their returns in New Zealand dollars with no exposure to foreign exchange movements.”
He says the rating is very important and the actual rating the bonds get give an idea of the default risk.
S&P data going back 22 years shows that if an A- rated corporate bond is held for a five year period, there has historically been only a 0.85% average chance of it defaulting. This compares with a 2.24% average chance for BBB rated bonds, 10.86% for BB rated bonds and 50.5% for CCC rated bonds. “This steep rise illustrates the value of S&P credit ratings as a guide to the risk that a bond will default.”
Swanger says the interest rate payable on Generator Bonds will be finalised on the issue date, shortly after the offer closes on August 13. It will be 7.75%, 8.00% or 8.25%, depending on the level of interest rates in New Zealand and overseas during the next four weeks. No fees will be deducted from this return.
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