Evil Diaries: Coupon does not compensate for capital

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Evil Diaries: Coupon does not compensate for capital

Many investors buy investments believing that the yield compensates for capital risk. And a very good example of this folly lies in Argentinian government debt. The record of total default is amazing and stretches back two hundred years.

I am sure that this affects the yield on oil company, YPF, which is 50% owned by the Argentinian government. YPF is the Argentinian equivalent of Shell.

Their bonds trade at 78 US cents yielding 8.5% p.a. at par and an annual redemption yield up to 2025 of 18% p.a.. YPF has buckets of cash and the Argentinian government cannot touch it. In short, yield more than compensates for capital.

I do not think that this is a qualifying bond for CGT purposes but it is ideal for trusts for children where income is in effect free of tax.


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