Interest-free risk instead of risk-free interest

"Instead of risk-free interest, there is only interest-free risk" is a sigh that has been heard for many years by so many asset managers. What is meant is that the days are over, in which you could simply hedge a stock portfolio with a few Bunds and could earn halfway through the interest coupon enough income. Looking at the current bond offer, one is initially inclined to vote in the lawsuit.

As part of an increase, Austria offers a coupon of – 0 percent for a five-year bond, Apobank pays 0.37 percent for nine years. You do not have to expect much in order to assume that after deduction of inflation with these bonds, the money will be worth less at maturity. This prospect is low risk.

The interest-free risk

However, the risk of the bonds themselves has not changed with regard to the maturity date. The probability that Austria or Apobank will be unable to meet their obligations in a few years' time had to be estimated just as much as it is today. And who refers to higher banking risks, one may argue that new capital regulations and just low interest rates their situation on the other hand have improved. Seen in this way, the risk is not significantly different, only there is (largely) interest-free.

For asset managers it looks a bit more difficult. Despite negligible interest rates, bond prices remain high and yields are at their lowest, often negative levels. Not only the risk of a setback is latently higher, but money can be earned with bonds only on price gains – similar to shares only without (notable) payout – interest-free risk just.

Interest with risk

If you want higher interest rates, you have to go even further into risk. It's not like there are no offers. Double-currency bonds, such as those issued by the British Barclays Bank, are issued in Brazilian real, redeeming 5 percent interest in Japanese yen. More interest is currently being paid by Foxtrot Escrow, which offers 12.25 percent for its seven-year dollar bond. In addition to the exchange rate, there is also a fair issuer risk. A rating can hardly be much weaker than "B-". And only with some difficulty can one find out that behind Foxtrot is the American plastic manufacturer FXI.

Alternatively, one can still resort to SME bonds. Yes, there are still, even if the name has lost sound since the bankruptcy of the issuers a few years ago. The titles, also referred to as "mini-bonds" due to their low volumes, today also carry a significantly larger interest rate spectrum. For example, there are 13 percent of the Estonian Iutecredit, which grants installment loans in the Balkans from Bosnia to Moldova. Business risks are obvious in light of soft currency, low living standards and political instability.

For those who like it a little less risky, the Underberg bond may be suitable for them. This is already the seventh bond for the producer of Magenbitter. With the new paper in the volume of 60 million euros and a coupon of 4 to 4.25 percent to replace two older higher-yielding securities. The lack of interest comes underberg to pass: For the debut bond in 2011, the Rheinberger still paid 7.125 percent.

. (TagsToTranslate) Interest (t) bond market (t) Austria

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