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  1. #1
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    Default NZX Subordinated Notes

    I am a novice when it comes to investing but out of interest I asked about the NZX Subordinated Notes. One of the most important details is the interest rate paid. Below is what the prospectus has;

    Interest Rate The Subordinated Notes will pay a fixed rate of interest for the first 5 years until the first election date.
    This initial Interest Rate will be determined by NZX in conjunction with the Joint Lead Managers
    following a bookbuild. A bookbuild is a process whereby an interest rate is determined by
    reference to bids from market participants for an allocation of Subordinated Notes.
    The initial Interest Rate will be set at the sum of the Swap Rate plus the Issue Margin, subject to
    a minimum interest rate.
    The minimum interest rate and indicative Issue Margin will be determined by NZX in
    conjunction with the Joint Lead Managers and announced to the market on or about 17 May
    2018. The final Issue Margin may be above or below the indicative Issue Margin.
    The Interest Rate will be announced to the market on or about the Rate Set Date.
    If NZX runs an Election Process, a new Interest Rate may be set via that process as described
    in section 3 of this PDS (Terms of the Offer) and section 5 (Key features of the Subordinated
    Notes).



    Any idea what this might mean in regard to interest rates? Obviously a large investor will be happy with a lower yield, particularly if it is someone else's money. Does this mean I would buy the bond without knowing the yield. I guess bond dealers would have a ball park figure but it sounds more like an interest rate auction controlled and decided on by the issuer (NZX) and their Joint Lead Managers. Sounds crazy to a small investor like me. Admittedly I haven't read through the whole document which probably explains things in more detail. Just wondered if anyone would have a ballpark figure for an interest rate on something like this.
    Also if I stick to my belief that the financial markets have a big crash coming buying 15year bonds in a rising interest rate environment with the possibility of inflation pushing up rates faster than expected this would probably be a bad idea. Admittedly if we are following Japan we might have another couple of decades of low interest rates. Who knows, I wait and watch but become more and more impatient waiting.
    Last edited by Aaron; 21-05-2018 at 08:05 AM.

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