CoCos and the like

[williaa68]

I am beginning to think that, if choosing carefully the price of bank sub debt and the like has fallen to the level where it now looks rather attractive in an otherwise interest free world. A tax free 6-8% if held in an ISA is a lot better than most other things, even on a risk adjusted basis. Anything I am missing (and I worked for s bank that nearly went bust so understand the risk)? Are there other forums where such things are discussed? Thanks in advance

[Ozzie Osmond]

If there was an easy, tax free 6-8% to be had, wouldn't we all be doing it?

[Simpo Two]

Ozzie Osmond said:

If there was an easy, tax free 6-8% to be had, wouldn't we all be doing it?

Well, we'd all pile on it until it broke. Which in these hyper-connected times would take about a day.

[williaa68]

Thank you, I understand the scepticism and am not saying it is easy - it obviously involves having capacity in an ISA to buy tax free and an acceptance of the risk - the ones I am looking at are rated BB. However I guess my point is that (a) financial bonds at this rating are MUCH cheaper than non-financial and hence on a risk / reward basis look attractive and (b) pretty much all the European bank CoCos have been hammered despite very different levels of capital in the issuing banks. Hence again, some look cheap. Anyway have put my money where my mouth is, although not in my ISA, so we will see what happens!

[W99KSY]

There's a reason they're cheap - I think investors have become concerned that CoCos may shut off their coupons in order to preserve capital - effectively you'd be short a put on the bank and not collecting the premium (coupon), hence why people are heading for the exits

With Dragi potentially looking at further stimulus the banking sector profitability could be damaged by deeper negative rates on reserves (if this is his next strategy).
Also, today I see that Deutche are looking to buy back their bonds which will hurt the newest holders who are no double going to make a loss selling the paper back at market ... interesting times ahead for the European banks I think

[williaa68]

I bought some this morning but in a reasonable size, hence why not in my ISA. You are correct though that a lot of the bonds have minimum denominations of USD50k or equivalent.