The Lemon Fool

There's two ways to get the capital back. One is you just wait for the gilt to mature and the other is to sell it in the market before it matures.

If you buy, e.g., a 10 year gilt and wait for it to mature then the money will just appear in your account when it does, in 10 years time, and you'll know from the moment you bought it exactly how much that will be, either in nominal terms for conventional gilts or in real (RPI adjusted) terms for index linked gilts.

If, OTOH, you sell it in the market before it matures then you'll get whatever the market is offering, with no guarantees that it won't be less than what you bought it for, maybe a lot less.

There's plenty written on the Gilts and Bonds board, take a look through the list of topics there.

Gilts held to maturity became popular around here in the months following the Truss-Kwarteng debacle, as net of tax shorter term low coupon gilts were offering better returns than equivalent period savings accounts, and indeed I swapped a lot of my savings accounts into such gilts, both conventional and index linked. However, the situation now looks like it's reversed and when the first of those matures next month I'll very likely be putting the money back into normal savings accounts again

Many thanks for this - very useful. I would follow suit and put the money into a high interest savings account but the money is held within two old company pensions - which I would like to transfer over to my SIPP in AJ Bell as

1 The money is tied up in useless funds
2 They don't do drawdown

Have you considered Vanguard lifestrategy funds? I hold Vls60 which is 40% bonds. They also do a 20/80 and 40/60 versions.

There's lot of bonds skeptics here. But really have to see 2022 as a one off in my opinion, with war in ukraine and interest rate rises hitting everything, but bonds in particular. Now bonds yields are up, and now offering a real return vs inflation, bonds have had a good latest quarter.

I'd wager 2024 bonds could be an outperforming asset class. The main reason equities have done so well in 2023 is the magnificent 7, which distort the returns on world trackers, and arguably are overpriced. If we have recession or stagnation in 2024, bonds may regain their defensive mandate.

Gilt yields have fallen sharply recently. 7 year gilts are now returning about 3.5%. I am inclined to think that the recent rise in equity and bond prices is overdone, but nobody knows what will happen.

GeoffF100 wrote:

JohnW wrote:A 10 year duration fund with drop in price by 20% if interest rates rise 2%. Is that the crash protection you want?

Conversely, if interest rates fall by 2%, a 10 year duration fund rises by 20%. The crash protection comes from a "flight to safety" during an equity crash. That effect is usually larger for longer dated government bonds. Longer duration bonds also usually pay more. That is mostly true now from 6 years onward:

http://www.worldgovernmentbonds.com/cou ... d-kingdom/

Nonetheless, it is sensible to pick a duration that matches your timescales. As already noted bond funds gradually move their average maturity date forwards, which may not be what you want.

Geoff, just picking up on this older post, I had been thinking that IGLS (Gilts of less than 5 years to maturity) would be a better bet than VGOV (Gilts longer than 5 years to maturity).
But, as mentioned above, as bond funds gradually move their maturity dates forwards (as in recycle their holdings), then surely the shorter maturing bonds such as IGLS would be affected by falling interest rates, or the prospect of falling interest rates (i.e. where we are now), sooner than the likes of VGOV?

richfool wrote:

GeoffF100 wrote:Conversely, if interest rates fall by 2%, a 10 year duration fund rises by 20%. The crash protection comes from a "flight to safety" during an equity crash. That effect is usually larger for longer dated government bonds. Longer duration bonds also usually pay more. That is mostly true now from 6 years onward:

http://www.worldgovernmentbonds.com/cou ... d-kingdom/

Nonetheless, it is sensible to pick a duration that matches your timescales. As already noted bond funds gradually move their average maturity date forwards, which may not be what you want.

Geoff, just picking up on this older post, I had been thinking that IGLS (Gilts of less than 5 years to maturity) would be a better bet than VGOV (Gilts longer than 5 years to maturity).
But, as mentioned above, as bond funds gradually move their maturity dates forwards (as in recycle their holdings), then surely the shorter maturing bonds such as IGLS would be affected by falling interest rates, or the prospect of falling interest rates (i.e. where we are now), sooner than the likes of VGOV?

If interest rates fall, both funds will be immediately affected, but VGOV will rise further because of its longer duration. If interest rates go up, IGLS will fall less, and will benefit from higher interest rates sooner. If interest rates fall, you will be better of with VGOV, and if interest rates rise you will be better off with IGLS. The problem is that nobody knows what will happen to interest rates.

GIL5 is cheaper than IGLS, but is a smaller fund.

Hariseldon58 wrote:

GeoffF100 wrote:Yes, as I have said, I believe that was the main factor there. VAGP still has the shorter duration. That will not help if interest rates fall, however.

Going forward if interest rates fall then VGOV with its longer duration will gain slightly more, its more a question of picking a duration that suits your needs.

For myself I have chosen to have my gilts split between IGLS ( 1-5 yr gilts). and GBPG ( 1-10 gilts) and TR26 linker with my dollar exposure between TP05 and ITPS ( under 5 years and total index ) TIPS plus nominal treasuries VUTA

I have added a more speculative holding of UBTL ( 20+ year TIPs) now at around £200k , I’ll roll this over into shorter durations if things progress as I think they will, interest rates falling over the next year or two. If I’m wrong then I still have a 2.5% real returns as the YTM of the underlying portfolio.

Hi Hariseldon, if I may resurrect this thread and gov bond theme.

I'm thinking of taking some equity profits and risk off the table. What would be your view if one was wanting to direct some funds into bonds at this point in the interest rate cycle? I'm assuming rates will start to fall by July if not June, though on a lower trajectory than previously anticipated, based on an assumption that inflation will be stickier than hitherto expected.

My thinking is 50% into US TIPS by way of ITPS, and 25% into VGOV (UK gilts) for its medium term holdings, perhaps along with 25% into VUTY (US treasuries). Would you concur with those choices at this point in time?

Regards.

Further to the above post, .... OR, .... might it be simpler to stick a slug into Personal Assets (PNL), as the one holding would give exposure to: index linkers, US TIPS and UK, treasuries, gilts, gold and some steady equities, and delegate the decision making to the investment managers?

Holdings of PNL:

US TIPS: 36.3%
Short-dated US Treasuries: 11.5%
Short-dated Gilts: 9.5%
UK Index-linked: 3.3%

Gold Bullion (Bars): 10.9%

Equities:
Unilever 3.6%
Visa 3.2%
Nestlé 2.7%
Diageo 2.7%
Microsoft 2.3%
Heineken 2.2%
American Express 2.0%
Alphabet 1.8%
Becton Dickinson 1.7%
Total Top 10: 33.3%

5 Other Equity holdings 4.7%
Cash: 1.4%

Source: https://www.hl.co.uk/shares/shares-sear ... d-gbp0.125

https://www.fundslibrary.co.uk/FundsLib ... nG5lFU&r=1

richfool wrote: might it be simpler to stick a slug into Personal Assets (PNL)

Wow! They have weathered the storm well. This is against VWRP and VAGS. Thanks for the suggestion. I am currently on my defence quest too.

richfool wrote:

Hariseldon58 wrote: Going forward if interest rates fall then VGOV with its longer duration will gain slightly more, its more a question of picking a duration that suits your needs.

For myself I have chosen to have my gilts split between IGLS ( 1-5 yr gilts). and GBPG ( 1-10 gilts) and TR26 linker with my dollar exposure between TP05 and ITPS ( under 5 years and total index ) TIPS plus nominal treasuries VUTA

I have added a more speculative holding of UBTL ( 20+ year TIPs) now at around £200k , I’ll roll this over into shorter durations if things progress as I think they will, interest rates falling over the next year or two. If I’m wrong then I still have a 2.5% real returns as the YTM of the underlying portfolio.

Hi Hariseldon, if I may resurrect this thread and gov bond theme.

I'm thinking of taking some equity profits and risk off the table. What would be your view if one was wanting to direct some funds into bonds at this point in the interest rate cycle? I'm assuming rates will start to fall by July if not June, though on a lower trajectory than previously anticipated, based on an assumption that inflation will be stickier than hitherto expected.

My thinking is 50% into US TIPS by way of ITPS, and 25% into VGOV (UK gilts) for its medium term holdings, perhaps along with 25% into VUTY (US treasuries). Would you concur with those choices at this point in time?

Regards.

My personal guidelines for bond exposure are 50% UK currency exposure and 50% US currency exposure.

50% Inflation Linked and 50% nominal

Overall I look at a duration of around 5 years but prefer a barbell of short and long rather than a total market with an intermediate duration.

IE pair IGLS with VGOV ( perhaps GLTL) , pair TP05 (or UBTS) with UBTL rather than ITPS, IBTS ( or TR3G) with IBTL rather than VUTY

If we admit we don't know what will happen we can be half right ! ( We certainly don't know what will happen with currencies, although I have sympathy with a bias towards US $..) Overall I feel a naive split between the two will provide the best balance of risks going forward.


With duration a split of around 2 parts short duration and one part long is comfortable, ⅔ of your holding will not suffer unduly from interest rate risk, you have optionality to go back into equities if we see major falls, the long side with ⅓ of your holding provides outsize returns if interest rates move a lot. If perhaps we saw a major equity market fall, significant interest rate cuts, the short duration side allows you to rebalance into equities and a chunky gain from the long bonds. If nothing happens then you have a reasonable income and should rates rise, ⅔ of your bonds do not move much and the the ⅓ with long duration take a hit but over time benefit form the higher rates.

This split from a simple all durations index fund is more comfortable to hold, the overall effect is the same but you see ⅔ of your holdings suffering very little from interest rate risk.

IMO Long TIPS with a real return of almost 2 ½ % are very attractive if you can take the long view....