Premium Bonds Surge as Investors Seek Higher Yields
Investors have snapped up premium bonds, driving their prices above face value. This trend occurs when bonds' coupon rates outpace current market interest rates, making them more attractive to investors.
Premium bonds offer higher yields, drawing demand and pushing prices up. Their fixed coupon rates remain constant throughout their life, but yields to maturity are lower due to the premium paid. For instance, Fidus Investment Corporation issued a $100 million 6.75% note due 2030, trading at a premium. Similarly, Ameren Illinois priced its $350 million bond due 2055 at 103.196% of its face value.
However, investing in premium bonds carries risks. Interest rate risk can cause bond prices to fall when rates rise, while credit risk arises from the issuer's financial health. For example, Voi's secured senior bonds, priced at 104.75%, carry such risks. Yet, strong credit ratings, like those of Fidus and Ameren, can boost demand and lead to premium pricing.
Premium bonds offer potential rewards but also carry risks. Investors seek them out when coupon rates exceed current mortgage rates, driving up demand and prices. Recent issuers include Fidus, Ameren, Eleving Group, SUNfarming GmbH, and Voi, each offering bonds with varying coupon rates and maturities.
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