Hybrids take the Crown for a gamble

Hybrids are securities that sit between shares and bonds: they trade on the ASX, pay regular interest-like distributions, and count as prime capital for issuers. For investors they can offer higher income than term deposits or bonds, but you usually need to hold them until they mature or are redeemed to be confident of getting your capital back. Hybrids can be risky—returns and prices can fall in stressed markets and some features can limit payments.

Hybrids have surged in popularity because term deposit rates and bond yields have been very low, driving investors to seek better income. According to the article, about $7.5 billion of hybrids have been issued so far this year, with new issues offering higher yields that attract buyers.

No — not necessarily. Hybrids typically pay 2–3 percentage points more than term deposits, but there's no government guarantee. Technically they may be marginally safer than shares in some respects, but in practice they can be just as dicey in bad markets and offer little chance of capital gain.

Crown’s notes are being advertised at about 8.6% a year, though the coupon varies each quarter and is roughly 5 percentage points over the bank-bill rate. The notes are cumulative (so missed payments can be owing), but interest can be postponed for up to five years, which is an important risk consideration despite the high headline yield.

Non‑cumulative hybrids can skip interest payments with no legal obligation to make them up later. Cumulative hybrids generally record unpaid distributions as owing, but as the article notes even cumulative issues — like Crown’s — can include clauses allowing interest to be postponed for long periods (Crown: up to five years).

When issuers bring new hybrids to market with better yields, it pushes down the value of earlier hybrids. The article points out that this year’s higher‑yield issuance has knocked down the prices of predecessors, and many older bank‑issued hybrids have been trading in the red.

The article suggests comparing yields and risks: for example, CBA shares can deliver a similar return after a 30% franking credit and may offer dividend growth over time, while Bendigo and Adelaide Bank shares were yielding just under 11%. APA Group and Caltex are offering a 4.5% top‑up on their hybrids (with a 0.5% discount to Crown), and the author notes those may be better value if they have fewer payment‑suspension risks.

Key things to check are the earliest maturity/redemption dates and who holds the option to redeem. Many hybrids can only be called or mature in five to six years and the call option is usually the issuer’s, not yours. That means you may be locked in through changing interest rate cycles and could face reinvestment or price risk when the issuer decides whether to redeem.