Impact credit insight – Return of the coupon

Stay tuned > Impact credit insight – Return of the coupon

- January 27, 2023

Author: Luca Manera, Investment Manager, Asteria IM

Novembre 2022

The return of the coupon

Fixed income investors have suffered for way too long. Coupon returns have eroded month after month over the past ten years as all-in bond yields continued to decline into negative territory, this is especially true for European bond investors. The notion of “fixed-income” is associated with the recurring and “fixed” coupon payment of a bond that provides a stable stream of cash-flows. In fact, coupons are a key source of return, especially for those investors seeking stable income. The good news is that coupon rates and as a result returns are already recovering from the recent historical lows of 2022, offering a glimpse of hope that fixed income will regain its fame as a provider of income.

Coupons are fixed at issuance, reflecting the current level of interest-rates and credit spreads (market and issuer specific); when the yield is set to be the same as the coupon rate the bond price is 100. While there can be significant differences of coupon-rates from an issuer to another, we look at index level data as this will largely reflect the broad coupon rate of the market.

Don’t look back in anger

As central banks cut interest rates over the past decade and embarked in quantitative easing this has pushed yields down (prices up), but at the cost of falling coupon rates. Consequently, this has translated into declining coupon

European coupons returns have declined since 2008 to historical lows in 2022 but are starting to recover.

returns for investors (approximated as the difference between the total return and the price return). As a result, the coupon rate has fallen across fixed income markets noticeably in Europe, with the Euro Government index coupon rate declining from 4% in 2011 to 2% in 2022 and the Euro Corporate index coupon rate falling from 3% to 1.6% by September 2022.

*The 6-month average of monthly coupon returns, approximated as Total Return net of Price Return
Sources: Asteria IM, ICE Index

Since 2018, the average monthly coupon return was of just 15bps and recorded the lowest monthly return in Q1’22.

This contrasts significantly with prior years when coupon returns could contribute more than 30bps a month of performance for investors. Even when considering the changes in historical composition of the indices which should support a higher coupon rate such as increasing duration and growth in lower rated cohort, the decline in coupon rate has removed a key source of return for bond investors.

Coupons are back!

Despite this year’s historically challenging performance for investors, driven by fast rising interest-rates and credit spreads, the increasing yields are starting to be reflected in higher coupons for new bond issues. The best point in case is Germany (AAA-rated) which was able to issue bonds with a 0% coupon and negative yields over the past years and in September it issued a 5-year bond with a coupon of 1.3%. Likewise, one of the largest corporate issuers in Europe, Volkswagen (A3-rated) was previously able to issue senior unsecured bonds with coupon rates below 1.5%, this contrasts with the 3.75% coupon of its recently issued 5-year bond in June.

Coupons are back! New bond issues offer a coupon rate more than double than what is available in the secondary market*

*Only EUR Corporate senior unsecured bonds
Sources: Asteria IM, ICE Index

After the (volatile) summer-lull, new bond issuance caught up in September, with over 60 new bond issues in the Euro Corporate investment grade universe amounting to over EUR45bn across ratings, sectors and tenors. Noticeably, the median new issue coupon rate was 3.2%, eclipsing the rate available in the secondary market of just 1.2% (August index as proxy). Even when adjusting the coupon rate by the hefty price discounts available in the secondary market (measured as the current yield), new issues continue to offer an attractive alternative for investors: with a coupon return of 28bps compared to the meagre 13bps of the index.

Higher and green coupons are here to stay

The current macro-economic environment of high inflation, recessionary fears and tightening of monetary policy along with volatile market conditions all point to continued high level of bond yields. Even in a scenario where central banks pivot and there is a shallow recession, coupon rates will continue to adjust upwards from historically low levels as new issues catch-up with the level of interest rates and credit spreads.

This holds true across all types of fixed income markets whether green or vanilla. A recent and noticeable example is the four-tranche green bond issue in October of TenneT, the Dutch owned electricity transmission operator and A-3 rated. The average coupon rate was in excess of 4%, this compares to an average coupon of around 2% for its last issuance in May 2022.

Stay selective and take advantage of the return of the coupon

As markets head into an uncertain winter in Europe, a slowing US economy and a fragile Chinese recovery, we continue to maintain our cautious view on credit markets and actively remain selective, even for new bond issues. Especially in the current market outlook, bond investors can now finally take advantage of an additional source of performance for their portfolios and benefit from higher coupon returns.



Miriam Dippe, Partner

+41 43 244 81 48 (office)

+41 76 706 35 40 (mobile)


Launched in 2019 with the support of the Reyl Group, Asteria is an asset manager entirely dedicated to impact investing. For Asteria, finance must adapt to the evolution of society and its needs, by integrating environmental and social issues into financial performance. In December 2020, Asteria announced a strategic partnership with Obviam, a Swiss impact investor with over 20 years of experience.


This marketing material is being provided by Asteria Investment Managers SA or/and its affiliates (hereinafter referred to as “Asteria”) solely for information purposes and is not intended to be a solicitation or offer, recommendation or advice to buy or sell interests in any security or investment product mentioned in it, to effect any transaction, or to conclude any transaction of any kind whatsoever, in particular to any recipient who is not a qualified, accredited, eligible or/and professional investor. This material contains confidential information and it is intended for the sole use of the recipient and may not be forwarded, printed, downloaded, used or reproduced for any other purpose. Any unauthorized copying, disclosures or distribution of these materials is strictly prohibited. It is not intended for distribution to, or use by, natural or legal persons that are nationals of a country or subject to a jurisdiction of which the laws or regulations would prohibit such distribution or use.

Whilst Asteria shall use reasonable efforts to obtain information from sources which it believes to be reliable, Asteria, its directors, officers, employees, agents or shareholders assumes no liability regarding this content and give no warranty as to the accuracy, completeness or reliability of any mentioned data and thus assumes no liability for any loss or damage arising from the use of this content.  The information, opinions and assessments contained in the present document shall apply at the time of publication and may be revoked or changed without prior notice. Unless stated otherwise, the data in this document are correct as at the date of this document. This document is designed exclusively for institutional, professional, qualified or sophisticated investors and distributors. It is not meant for the general public or private clients of any jurisdiction or those qualified as ‘US Persons’

This content is intended only for recipients who understand and are capable of assuming all risks involved. Before entering into any transaction, recipients should determine if the relevant security or investment product mentioned in the content suits particular circumstances and should ensure that they independently assess (together with their professional advisers) the specific risks, the legal, tax, accounting consequences and eligibility requirements of any purchase, holding or sale of securities or investment products mentioned in the content. Asteria, its directors, officers, employees, agents or shareholders may from time to time have interests and/or underwriting commitments in investments described herein. Asteria makes no representation as to the suitability of the mentioned information, opinions or securities and investment products. Historical data on the performance of the securities and investment products or on the underlying assets are no indication for future performance. Reference to an index is made for comparison purposes only. The present content has been compiled by a department of Asteria which is not an organisational unit responsible for financial research. Asteria is subject to distinct regulatory requirements and certain services, securities and/or investment products may not be available in all jurisdictions or to all recipient types.

Recipients are therefore responsible to comply with all applicable laws and regulations. There is no intention to offer services, securities and/or investment products in countries or jurisdictions where such offer would be unlawful under the relevant laws and regulations.

Performance is shown based on the share class NAV per share (in the share class currency) with dividends reinvested (for distributing share classes), including actual ongoing charges, and excluding subscription/redemption fees and taxes borne by the investor.

Funds under Luxembourg law. Representative and Paying Agent in Switzerland REYL & Cie Ltd, rue du Rhône 62, 1204 Geneva. Prospectus, key information document, the articles of association as well as annual and semi-annual reports are available free of charge from the Representative and Paying Agent in Switzerland.

Copyright 2022, ASTERIA Investment Managers S.A. All rights reserved

Return to stay tuned
cta image footer
Background Shape


Read More