The concern that quantitative easing may finally be coming to an end has spooked investors and sent a ripple effect out from the US that has made waves in all sorts of markets. Any assets associated with higher risk have been affected, with emerging market assets suffering particularly acute falls, alongside high yield bond funds. The London Stock Exchange's Orb retail bond market is no exception to the general shake-out, and investors have been booking profits on bonds issued on the market during the past couple of years. The clearout has affected longer-dated issues that had attracted significant premiums, but with these now trading around par, there is a clear case for a value argument for Orb bonds.
Observers have noticed a couple of interesting trends in the Orb market. To begin with, the sell-off of Orb bonds actually ran ahead of the comparable institutional market for bonds. It is true that institutions' financial obligations, particularly when running a pension, means they are naturally more reluctant to crystallise their investments, and retail investors seem to have been quicker off the mark when assessing the impact on asset prices of a reduced programme of Federal Reserve bond-buying. The net result of this is that, according to data from CannacordGenuity, the average yield of Orb bonds has risen by 0.8 percentage points to nearly 5.5 per cent in less than six months.
Some areas of the market have seen greater price attrition than others, though this may not necessarily be related to general market conditions. For example, Orb tends to be dominated by property companies, which have been the most consistent issuers of debt. After a fallow time for issuance, Helical Bar came out with a £75m bond on Orb last week, with a relatively generous 6 per cent coupon. The issue attracted strong interest and, as Orb bonds are exempt from capital gains tax, investors had an added incentive to book profits and roll over their profits into a new bond issued at par.
