PIBS anyone ?

[hiriskpaul]

An additional risk with PIBS and all other securities issued by banks and building societies, including all equity, deposits and bonds other than senior secured, is that they may be "bailed in" by the regulator (the PRA in the UK) prior to the bank actually being wound up.

Bail in would only happen if the bank was in extreme trouble, but something extra to consider with any bank or building society investment.

[taken2often]

here is my 2 cents worth.

I have 18 Pibs and 16 Preference shares all bought years ago. Underwater at present with Manchester. I probably average around 7.5%. My first batch 14 years ago I bought at 6.5% yield. So they are back to square one, although some are coming to nearly paid for and the income will continue. I will not buy again until they are up to 8%. This should happen as the interest rate rises. These should not be traded on a regular basis buy for life unless you have a very high profit. I trimmed some down this year due to this.

I have not read all the replies so I will mention one or two points. The income is paid gross which is great in Sipps and ISA but 20% tax on taxable account as it is interest. The new £1000 allowance may help. I have been Bed and ISA each year for years so the 20% tax saving is substantial.

Northern Rock and Bradford and Bingly both suspended pay out, but I got my money back eventually. Made a profit on NR as I bought a batch at 17p.

I have been using the higher yield for years to buy dividend growth shares and Investment Trusts.

Bob

[wycombesian]

Another one bites the dust.

Last week, Skipton called it's 6.875% PIBS at par(100).
I owned these for around 5 - 6 years and over that period earned a total return of at least 75% on my investment, all tax free since it was in my SIPP.
Great investment but now I need to replace the 6.875% income stream that I lost.

IMHO now is not the right time to buy long-dated fixed income.

I can add to one or two of my existing SIPP investments that will get me close to replacing the 6.875% income stream, but I'm running out of options for the cash in the SIPP.

Any suggestions for 6% + income earners?

[tjh290633]

Here are a few:

Moderator Message:
This is the Gilts and bonds board. Recommending Equities is off topic. Raptor.

TJH

[hiriskpaul]

Another one bites the dust.

Last week, Skipton called it's 6.875% PIBS at par(100).
I owned these for around 5 - 6 years and over that period earned a total return of at least 75% on my investment, all tax free since it was in my SIPP.
Great investment but now I need to replace the 6.875% income stream that I lost.

IMHO now is not the right time to buy long-dated fixed income.

I can add to one or two of my existing SIPP investments that will get me close to replacing the 6.875% income stream, but I'm running out of options for the cash in the SIPP.

Any suggestions for 6% + income earners?

Unfortunately there are no short dated PIBS or other fixed income stocks of the quality of that Skipton PIBS available on anything like a 6% yield any more. You either have to push out the duration, or decrease the credit quality.

If you don't want the duration risk, a short dated bond I have bought recently is PMO1 (Premier Oil 5% 2020). This is a senior unsecured retail bond that is being restructured, along with Premier's other debt. The coupon is going up to 6.5% and maturity pushed out to 31/05/2021. Yield to maturity on the restructured bond is around 9.7%. I think it goes without saying that there is a lot of risk here. Premier has a lot of debt and will do very badly should the oil price collapse again, so not one for a farm bet. The debt restructuring is expected to complete by the end of May. Restructuring might not happen, but I think this is now highly unlikely to fail and I am expecting the price to jump once it does, assuming the oil price does not plummet first.

[wycombesian]

TJH
You make a good point about diversification, which I take very seriously
Generally, I rarely put more than 2% of my SIPP in any single name, which means I have well over 50 holdings in the SIPP. Some of these are ITs and ETFs
which are themselves invested in a further selection of bonds etc. Perhaps some would see this as overkill in terms of diversification, but at least I can sleep well knowing that my diversification risk (or concentration risk , if that's the way you look at it) is virtually nil.
My duration risk is mitigated by having a laddered portfolio, ranging from short dated to long dated (even some undated), floating rate, fixed rate etc.
Liquidity risk is of little interest to me since the SIPP is invested for generational transfer and liquidity requirements are minimal.
Credit risk and leverage risk are always of some concern, but very much reduced by diversification.
Are there any other risks I haven't mentioned that I should be concerned about ( apart from the obvious macro political/economic/social environment which I can't do much about) ?
hiriskpaul
Good suggestion of the PM01, but probably a bit too much credit risk for me. For the amount I would need to invest, the risk/reward just does not look good.