Consider two securities: Natwest 9% NWBD vs CoOp 42TE 11% 2025

NatWest NWBD is 9% nom yield, a Cumulative (must pay) Perpetual Pref , recently ex-div.
Co-Op 42TE is 11% nom yield, is guaranteed by Co-Op group not just Co-Op bank,

EOD buy prices (per iDealing)
Current price of NWBD is 128, giving yield of approx 7.03%
Current price of 42TE is 112.5, giving yield of approx 9.77%

Recent price for Co-Op has fallen by over 10p following resignation of Sutherland and prospective departure of Myners. But, will they go bust? I suspect not. Therefore I will take that risk in preference to the NWBD this time.

Any comments?

Comments

  • I dont know enough about the co-op bond to comment, but I will speak up in favour of the NWBD.

    The thing with NWBD (please correct me if I'm wrong), is that it kept paying throughout the financial crisis, despite the near nationalisation of its parent company. As far as I'm concerned, that tests it's credit risk pretty much to destruction and it survived.

    So at 7%, NWBD looks like a very fair yield versus perpetual gilts, say War Loan at about 4.2% which I take as a "heartbeat" for risk free perpetual debt. I think the spread is still too big, so (barring some disaster) NWBD will soak up the eventual rise in interest rates without a great capital loss.
  • The Co-op groups report today indicated some pretty shaky foundations. More money needs to be saved to prevent 'inexorable decline'. More money needs to be raised to plug existing holes. It would seem that many of the great and good on the Board are just not aware of important financials.

    I like the interest rate on the notes, but you are getting the other side of the coin as well - significant risk and a Board that has to do better!
  • I agree with Louis, am getting frustrated waiting for new issues and think 7% is fair enough for NWBD. Am going to park some cash there, regardless of potential future interest rises. If interest rates ever do approach 7% my existing holdings - with the exception of one linker - will have long since been liquidated ...
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