Before investing in a perpetual bond, an investor should consider the following factors:
1. Creditworthiness of the issuer:
The first consideration for any bond investment is the creditworthiness of the
issuer. Investors should research the issuer's financial health and credit
rating to assess the likelihood of default.
2. Interest rate risk:
Perpetual bonds typically pay a fixed rate of interest, which means they are
vulnerable to interest rate risk. If interest rates rise, the bond's value will
fall, and the yield will become less attractive.
3. Liquidity risk:
Perpetual bonds may have lower trading volumes and less liquidity than other
bonds, which could make it difficult to buy or sell them when desired.
4. Call provisions:
Perpetual bonds may be callable, which means the issuer has the right to redeem
the bonds at a specific price. Investors should consider the likelihood of the
issuer exercising the call option and how that could affect their investment.
5. Tax implications:
Perpetual bonds may have different tax implications than other investments, and
investors should consult a tax professional before making any investment
decisions.
6. Yield to call and yield to maturity:
Investors should compare the yield to call and yield to maturity of the
perpetual bond to determine the potential return on investment.
7. Market conditions:
Investors should consider current market conditions and economic outlook when
making investment decisions.
Overall,
investors should carefully evaluate the risks and potential returns of a
perpetual bond before investing. A financial advisor can provide valuable
guidance and help investors determine if a perpetual bond is a suitable
investment for their portfolio.