THE National Road Operating and Constructing Company (NROCC) 9.375 per cent 2024 bond is set to make a principal payment to bondholders on November 10, 2023. You should be receiving roughly 50 per cent of the principal amount you own. Be sure to ask your broker about it and prevent the funds from sitting idly in your account.

As investors receive the proceeds from this pay down, it’s essential to understand that the current environment is very different from the one they purchased this bond in. It is now possible to get a higher coupon and yield for the same or even lower risk.

Understanding the existing NROCC 9.375% 2024 bond

The NROCC 9.375 per cent 2024 bond has been a high-yielding investment, offering an attractive 9.375 per cent coupon rate. Over the years of low interest rates, investors have enjoyed the attractive interest payments, making it a popular choice for those seeking higher returns on their fixed-income investments. However, the credit rating of BB- still means that this bond is defined as “speculative” by S&P. According to the rating agency, a “BB” rated credit is “less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions”. Thanks to higher interest rates, it is now possible to get higher returns on less speculative investments.

Investment Options for Maturing Funds

Yields and coupons are at multi-decade highs. It is a great time to be a bond investor with liquidity. The current market conditions allow investors to lock in higher interest rates for the next 7-10 years. There are many different types of fixed-income investments available in the market:

• Corporate bonds: Investors may consider investing in corporate bonds from reputable issuers. These bonds often offer competitive yields and various maturities, allowing you to tailor your fixed-income investments to your risk tolerance and income needs. Investment-grade plain vanilla bonds are yielding anywhere from 4 per cent to 6 per cent depending on the tenor. High-yield plain vanilla bonds are yielding anywhere from 7 per cent to 12 per cent.

• Government bonds: Government bonds are considered among the safest fixed-income investments. Treasury bonds, for instance, provide a low-risk option, although they generally offer lower yields compared to corporate bonds. Government bonds are suitable for conservative investors looking for a secure income source. The US Treasury bonds are yielding between 4 per cent and 5 per cent.

• Hybrid securities: These notes can be thought of as “hybrid” instruments because they combine features of debt and equity and count towards the capital base of a bank. They rank just above common equity holders in the capital structure and usually have very specific terms and conditions that govern the payment of interest and principal. These terms usually increase the risk of the notes. However, they are issued by large, investment grade rated companies (usually large banks). These notes offer competitive yields and provide diversification opportunities. Yields are currently ranging between 8 per cent and 12 per cent on credit ratings between BB and BBB-.

In conclusion, as the NROCC 9.375 per cent 2024 bond approaches its pay down date, investors are presented with an opportunity to reassess their investment strategy and potentially secure equal or higher yields with less risk. It’s important to evaluate various investment options, diversify your portfolio, and stay informed about the current market conditions. By taking a proactive approach, investors can make the most of their maturing funds and continue to build a robust and profitable investment portfolio.

Marian Ross-Ammar is vice-president, Trading & Investment at Sterling Asset Management. Sterling provides financial advice and instruments in US dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm.

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