Equity shares of financial holding company Morgan Stanley (NYSE:MS) are currently trading in the mid-$14 range in the midst of uncertainty regarding the future of the financial sector at large, largely driven by the unknown effect of the implementation of stricter regulations in the aftermath of the 2008 financial crisis. MS is by no means the only large bank to suffer from such uncertainty in the markets; peers Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Deutsche Bank AG (NYSE:DB), and others are similarly afflicted.
One new fixed-income issue from Morgan Stanley, though, merits some attention from investors who like the idea of taking advantage of today's uncertainty to potentially lock in an inflation-beating yield for the next decade. Let's take a look at the Morgan Stanley Global Medium-Term Notes, Series F:
These notes are being offered from August 13, 2012 to August 20, 2012, with settlement on August 23, 2012 and maturity on August 23, 2022. Coupon is 5%, and as these are new issues the price is 100.000 cents on the dollar, yielding 5% as well. Coupon payments are semi-annual on February 23 and August 23 (with first coupon on 2/23/2013), and the bond is non-callable and taxable. Moody's analysts have rated the bonds Baa1, and S&P analysts have rated them A-.
These fixed rate senior notes are denominated in $1,000 and integral multiples of $1,000 in excess thereof. CUSIP is 61760LAB1. The prospectus reveals that the bonds have no other provisions. Prospective investors should note that these bonds have no "survivor's option" or "death put."
For those investors seeking a fixed 5% yield for the next decade, I would recommend a purchase of these new Morgan Stanley fixed-issues. The likelihood of credit default in the next decade, even given the increasing regulatory cost burden of the next few years and beyond, is relatively low. Moreover, investors bullish on MS equity shares especially have reason to diversify their portfolio and lock in a fixed income stream yielding 5% from this firm - this yield is much higher than that of a certificate of deposit from a local bank or U.S. Treasury bills, though the risk is admittedly higher.
Investors should be sure and investigate all the factors involved to see if this investment and its risk characteristics are appropriate for their investment strategy and objectives before entering into a purchase of these bonds. Still, for certain investors, such yields may be a perfect fit for a portfolio. Those wanting to do some more due diligence may wish to look at the term sheet/prospectus for these bonds themselves, which can be found here.
Be careful when examining corporate fixed-income securities to see if any bonds in question have special redemption provisions that might result in a lower yield to worst than anticipated. Fixed-income investors should conduct their own due diligence on all potential investments before making final investment decisions. Investors should remember that these notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, and that the integrity of the notes is based upon Morgan Stanley's credit solvency and ability to service its debts to bondholders and creditors into the future. Best of luck!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.