Tuesday 4 June 2013

Portfolio Sale: Halifax plc 9 3/8% 2021 Corporate Bond (LSE:EH21):

Going down?
In addition to my recent sale of a Lloyds preference share, I have also sold this Halifax corporate bond.

The thinking is the same: at some stage soon government bond prices are going to fall (as Quantitative Easing unwinds), meaning that the yields from these 'safe' government securities will rise, bringing down the price of other fixed-income securities.

I bought these Halifax plc 9 3/8% 2021 corporate bonds back in March 2012: back then I was excited about the 9% yield. Now. although the yield is still attractive, the price has risen by over 20% and as well as the looming QE correction, I am aware that the maturity clock is ticking. So there seems little scope for further capital gains.

I have to admit that the sell decision is not so clear-cut as for the Lloyds preference shares: it comes down to a fairly narrow trade-off between:
  • cash now, from a sale, or
  • cash later, in the form of annual coupons and the final maturity payment in 2021

However, I am concerned that there might be a 'fire sale' of fixed-income securities during the next year or so - and as I plan to be away for a few weeks in the summer, I am cashing out where there is a price premium. I plan to continue to hold the fixed-income securities that I have bought below par and where there is less of a price bubble.

[Sale price: £1.2475]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. I was a little caught by surprise that you chose to sell this bond given your comment, on purchase, "Is this really going to fail?"
    I purchased the bonds a little later than you, at 98p/£1, giving a yield of just under 10%, on the argument that over 10 years I get paid out the capital and then I retrieve my capital at redemption. That's a pretty good proposition (a bit like Persimmon when it traded at 620p and it said it would return 620p to shareholders over 10 years in dividends).
    Now, at 127.5p I am considering purchasing more since the running yield is still good, at 7.35% and, if sold prior to the decline near redemption my IRR (on 3.75% cost of capital) is still over 6%. Where else can I get something similar?

  2. I'm not taken with your logic here, other than it persuades me to buy some of these: great running yield, 8 years to maturity, wow. Only think not to like, is the possibility of holes beneath the waterline similar to Co-Op : but I think by now we would know that (though that's what I thought about the Co-Op too!).

    1. Tulip

      You may be right - however the prospect of returning all my initial outlay plus 3-odd years of income was too strong, particularly as I think the price will be falling soon. Remember that this security is actually Lloyds - no telling what they might do with it as they sort themselves out!