Bond Watch: two new bonds to consider

Interactive investor customers can invest in two new bond issues, one offering a 7.5% yield and another offering 1.75% above the UK inflation rate.

The first is Belong Limited 7.5% Social Bonds due 2030. Existing investors in Belong’s 4.5% 2026 bond have the chance to switch into the higher-yielding bond via a tender offer. It is also open to new investors, who may find the yield appealing.

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Belong is a care home operator running eight homes in North West England.

On average, approximately 65% of Belong’s residents are privately funded, while the remainder are funded from public sources such as local authorities and the NHS’s integrated care systems.

Belong said: “The proceeds of the old bonds helped Belong grow its activities by building three new care villages. The issue of the new bonds will allow it to spread its refinancing risk beyond 2026 while offering existing bondholders the option to switch their investment into longer-dated bonds with a higher coupon.”

The bond will bear interest at a fixed rate of 7.5% per annum, payable twice a year on 7 January and 7 July, and is expected to be repaid on 7 July 2030.

However, because the bond will issue at £98 and redeem at £100, the effective yield-to-maturity over the life of the bond is 7.99% annualised, according to Belong. 

• Find out more about the Belong bond here

New investors must have a minimum initial subscription amount of £500, but they can then invest in £100 multiples.

At a near 8% yield, this suggests the bond is at the riskier end of the fixed-income world. For comparison, gilts yield between 4% and 5.5%, and investment-grade corporate bonds also yield around 5.5%. Investors should do their own research to make an informed decision on whether to buy the bond.

Customers have until 10am on Monday 30 June to invest.

New index-linked gilt offer

The second bond that is fundraising is from the UK government. The 1.75% Index-Linked Treasury Gilt 2038 offers 1.75% returns above inflation, as measured by the Retail Price Index (RPI) until 2030, and then the Consumer Price Index including housing costs (CPIH) index until the gilt matures in 2038. RPI inflation is currently 4.5%, ahead of the Consumer Price Index of 3.5%.

This gilt may appeal to investors who are worried about inflation and want to secure a positive “real” return over the life of the gilt.

The UK government issues two types of gilts: conventional and index linked. Most gilts (around 75%) are conventional, meaning that the coupon remains fixed for the duration of the bond, as well as the principal value that is returned when the gilt matures.

For the other 25% of gilts in issue, two semi-annual coupons and the final principal on maturity are adjusted depending on the level of Retail Price Index (RPI) inflation over the gilt’s life.

Unlike the Belong bond, where if the company falls into financial difficulties it is possible the debt holders will not get paid, the likelihood that the UK government will default on its debt is effectively zero.

• Buy the new gilt here
• How inflation-linked gilts work
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The offer is open for applications until 3pm on Monday 9 June. Investors can put a minimum of £1,000 into the gilt, and up to £1 million.

Buying the gilt at issue means that there will be no difference between the “clean” and “dirty” price (which accounts for accrued interest) of the gilt, which makes for a simple return calculation. Once the gilt begins trading on Wednesday 11 June, it can be bought and sold like other gilts.

During the life of the gilt, the dirty price can differ greatly from the clean price due to the growth of the coupons and principal value due to inflation.