#371

JonWBWB
Participant

OldBoyReturns (Mark) – Thanks for a great update on the Q3 2016 Trading Update for Co-op Bank.

I sold my 100,000 nominal holding of Co-op Senior 2017 bond (ISIN XS0542823892) this morning for 92.3p. The counterparty was HSBC and the trade was settled via Euroclear.

I thought I would use this first post to provide a bit more background to online sources for price transparency for the Co-op Senior 2017 bond. There are two exchanges where there is some information that I am aware of:

  1. The London Stock Exchange (LSE) where the ticker is 77UQ
  2. The Börse Frankfurt: XS0542823892

The LSE is very hit and miss with regards information and the Börse Frankfurt is – generally speaking – more accurate for prices. The definitive source for virtually all fixed income pricing is the Bloomberg Terminal, but this is unlikely to be available to anyone other than professional investors due to the cost.

The ability to settle trades in CREST (this is the settlement system used in the UK and Ireland to settle most listed shares) works by blocking off a portion of the bond in Euroclear or Clearstream and allocating that specific portion as a CREST Depository Interest (CDI). Only a very small subset of corporate bonds are setup with a CDI to allow settlement via the CREST system and the size of the allocation (in terms of the amount outstanding of the bond) is usually small.

CREST (the settlement system) is owned and operated by Euroclear UK and Ireland (the company), so this is one of those cases where google is thwarted on a search of ‘CREST Euroclear’.

Most of the on-line discount retail stockbrokers in the UK only allow settlement of corporate bonds in the CREST Settlement System. If  you want to settle in the Euroclear or Clearstream systems, you will likely need to use a full service broker where higher fees are charged. 

[If anyone is aware of discount UK stockbrokers who offer Euroclear settlement, please share the information in this thread.]

It is quite common for a wide disparity between the price that can be obtained between settlement via CREST and settlement via Euroclear and Clearstream. Generally speaking, the spreads on CREST settlement tend to be wider. 

I thought it might be a good idea to introduce readers to two of the main Bloomberg screens for the Co-op Senior 2017 bonds. I will point out at this stage that my background is purely as a retail investor. I have no knowledge of the fixed income industry in any professional capacity. I am completely self taught and started back in 2009 on the UK based Motley Fool Banking Sector board (where I also posted as JonWBWB).

Once the security is loaded in Bloomberg (there are various ways and means, which I will not go into now), there are screens that can be accessed for information.

DES (Bond Description) – COOPBNK 5 1/8 09/20/17

XS0542823892 DES

A few comments on the DES screen:

  • A compressed notation is used to describe the bond (COOPBNK 5 1/8 09/20/17), which is issuer, coupon and maturity date [See top left]
  • The current price is displayed with the time underneath (red if the price is down on prior close, green if it is up) [See top centre]
  • More details (called pages) can be accessed from this screen [See left hand column]
  • Most of the other information on the DES screen is reasonably self explanatory (or can be understood with a bit of googling).

The screen that makes Bloomberg mandatory for professional fixed income investors is the ALLQ (All Quotes or Pricing) screen. This is one of the main reasons why Bloomberg has a near monopoly on corporate bonds. Whereas most equity (Stocks) trade electronically on open exchanges (and by open, I mean open to all market participants as both retail and institutional can see realistic prices and execute for themselves), for Corporate Bonds, trades are typically over the counter and market makers will post their prices on Bloomberg.

ALLQ (Bond Pricing) – COOPBNK 5 1/8 09/20/17

XS0542823892 ALLQ

A few comments on the ALLQ screen:

  • The level of detail you can obtain on this screen is in itself dependent on data feeds you have signed up for (over and above the cost of a Bloomberg Terminal).
  • The BVAL score is a Bloomberg valuation, on a scale of 1 (lowest accuracy) to 10 (highest accuracy) and it is based on all the data Bloomberg has access to (but that you may not see on your ALLQ screen).
  • Note that the LSE has a very wide spread 85 / 100 and that the Frankfurt Exchange (Börse Frankfurt) has much tighter spread 91.7 / 93.8.
  • For very liquid corporate bonds with lots of visible market makers, this screen flashes constantly as the bid and ask prices update.

For professional investors who have execution services enabled via Bloomberg, it is possible to execute buy and sell orders directly from the Bloomberg Terminal. If you use a Stockbroker who allows for Euroclear settlement, they will probably execute your order request from within the Bloomberg Terminal whilst taking your order over the phone.

I have written this from the point of view of what I would like to have had explained to me when I was starting out in Fixed Income as a retail investor. Please do provide some feedback in this thread on whether this has been helpful.

There will be enough big hitters – many of whom will be professional fixed income participants – who can correct anything I’ve got wrong.

I intend to explain my rationale for selling my Co-op Senior 2017 holding at some stage, but I don’t have time right now. The gist is that my thoughts are very much in-line with OldBoyReturns (Mark’s).

 

 

  • This reply was modified 2 years ago by  JonWBWB.
  • This reply was modified 2 years ago by  JonWBWB.
  • This reply was modified 2 years ago by  JonWBWB.