The best plan of the moment? Bonds currently seem to have everything to appeal, with a contained level of risk and rates often higher than what risk-free savings offer, particularly since the reduction in remuneration for Livret A accounts on August 1. In the United States, the Federal Reserve’s (Fed) key rates remain higher than in Europe, and keep corporate bond rates at a high level. In Europe, the European Central Bank (ECB) has lowered its key rates, but government bond yields can still be attractive (particularly in France, due to political instability).
However, for individuals, the possibilities of investing in bonds remain limited, except via baskets of bonds (bond funds, or ETFs) via a securities account or life insurance. To compensate for this lack, the Trade Republic bank announced, this Wednesday, October 15, a new range of bond products available on its application. Objective: to open a path for savers between savings accounts (which are too poorly paid) and shares, which are profitable over the long term, but too volatile in the short term: “Bonds are thus interesting financial securities for financing two or three-year projects, a trip, a real estate contribution, a car, etc.”summarizes Vincent Grard, France director of Trade Republic.
Bonds pay fixed interest over a period known in advance
The interest of bonds is in fact that they consist of lending money to a State or a company, which, in exchange, pays you interest at regular intervals (the “coupon”), and repays you the entire capital lent at maturity. If you keep the bond until the end, you know the return that you will receive on a recurring basis thanks to the coupon. To benefit from this, Trade Republic is expanding its range of American corporate bonds to which you can subscribe, including giants like Netflix, Apple, Amazon, Nvidia…
New dated bond ETFs are also emerging. These baskets of bonds indicate the year of their maturity: 2029, 2030, etc. You can thus finance your projects planned for a known date, on a principle which resembles term accounts: “With dated ETFs, the savings project returns to the heart of the strategy. The rate is blocked, the duration is known: it is a cushion of stability in a portfolio”analyzes Vincent Grard.
Take the example of ETF “iShares iBonds December 2030» denominated in dollars issued by iShares (BlackRock). This ETF brings together around 500 bonds from several American companies (Oracle, Visa, Apple, HSBC, etc.) and delivers fixed interest of 4.19% until its maturity in December 2030. Or 41.9 euros per year for 1,000 euros invested, with a risk assessed at 3/7. With a basket of several hundred bonds, you effectively dilute the risk of bankruptcy and losing your interest.
But you can also lend directly to several companies. Maturing August 2030, the bond issued by Apple, for example, earns you 3.82% for 4.9 years. That is, by investing 1,000 euros, an income of 38.2 euros per year. In both cases, you must deduct 1 euro of purchase fees taken by the application, the ETF funds if it is an ETF (0.12% per year for the one mentioned above), and the 30% of the single flat tax (PFU or flat tax) which applies to both interest and capital gains in the context of a securities account.
