Banking on financials

For Jeremy Smouha, chief executive of Atlanticomnium, the rating of the issuer matters more than the rating of the particular bond.

“Junior or hybrid bonds are often rated below investment grade, but if the issuer is investment grade, then the probability of default of all bonds in the capital structure is very small. We can, therefore, capture a much higher income for the same small default risk.”

Atlanticomnium’s GAM Star Credit Opportunities fund owns the HSBC coco yielding 5.03 per cent, for example, which compares very favourably with a similar duration senior HSBC 2022 bond yielding 0.84 per cent.

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