Investing in corporate bonds: how much you can earn and what you have to know before investing

Corporate bonds are becoming an increasingly common choice for every investor. BeMyBond CEO Indrė Dargytė shared with 15min the key trends we are seeing in the market today:

8-9 %: this is the annual interest rate (coupon) we currently see as the established level. It depends on the issuer borrowing the funds, its business management experience, financial strength and track record in the capital markets.

Which companies pay higher interest? Companies that are refinancing existing bond issues or have ongoing bond programmes usually want to offer similar or lower interest rates compared to their previous borrowings. At the same time, we are seeing indications that investor expectations have already risen. As a result, first-time borrowers are now "debuting" with higher interest rates than they could have secured just six months ago.

Sectors: We currently see strong demand for capital in the real estate sector, particularly residential. These funds are used to finance both land acquisitions and construction. We are also seeing a fair number of company acquisitions and management buyouts, which are likewise financed through bonds or private debt.

Advantages and disadvantages of bonds compared to shares: One of the main advantages of bonds as an instrument, especially when they come with additional security measures or pledged assets, is the bondholders' position in the borrowing company's overall capital structure: they rank ahead of shareholders' equity. Bond investors also like the fixed return. In addition, Baltic corporate bonds carry a certain illiquidity and geopolitical premium, which is earned by investors in our countries, as even financially strong companies borrow at a relatively higher cost than in Western Europe. The main disadvantage for those investing in bonds in the Baltics is the shallow secondary market.

What is important to know? Investors should read the information related to a bond issue, which will help them assess the company's business management history, financial situation, potential risks, how the funds borrowed through the bonds will be used, how the future debt will be serviced and where the money to repay it will come from. Unfortunately, we still find that even though documentation is becoming simpler under the new regulation, the majority of potential investors still do not read it carefully.

Read the full 15min article here in Lithuanian.