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Preparing a Bond Ladder (via Interactive Investor?)

Gilts, bonds, and interest-bearing shares
GoSeigen
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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375089

Postby GoSeigen » January 9th, 2021, 11:51 am

tjh290633 wrote:
GoSeigen wrote:To get a Total of 5151.20 for TJH's holdings on 15 Feb 2013, I took the sum of the above dirty prices multiplied by the nominal amounts purchased that TJH quoted earlier in the thread, viz:
tjh290633 wrote:
Date         Stock        Amount  
26/02/2008 4.5% 2013 999.30
26/02/2009 5% 2014 891.82
25/02/2010 4.75% 2015 913.41
25/02/2011 4.0% 2016 941.44
28/02/2012 8.75% 2017 704.87


Did I understand those nominal amounts correctly TJH?

Given 5-year yields were below 1% by 2013 I agree returns after that date would be paltry. That has never been in dispute.

GS

Yes, those nominal amounts are correct.

TJH


Okay then I'm still struggling to marry up your calculated 2013 IRR of 0.2054% (precise but too low) with my calculated 2.47% -- which to me looks in the right ball-park for that ladder started in 2008. Where have I gone wrong? Or do you accept your figure may have been wrong? Or are we at cross purposes?

Over that period 5-year gilt yields fell from 4.5% to less than 1%.

GS

tjh290633
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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375109

Postby tjh290633 » January 9th, 2021, 12:17 pm

GoSeigen wrote:Okay then I'm still struggling to marry up your calculated 2013 IRR of 0.2054% (precise but too low) with my calculated 2.47% -- which to me looks in the right ball-park for that ladder started in 2008. Where have I gone wrong? Or do you accept your figure may have been wrong? Or are we at cross purposes?

Over that period 5-year gilt yields fell from 4.5% to less than 1%.

GS

You have my cash flow, I do not have the details of the prices of the individual stocks at the end of the period, just the value that I calculated, except for that stock sold. Looking at the prices I have for the current set of stocks, the column is headed "dirty price". Of course, when a stock goes XD the clean and dirty prices are the same.

Bear in mind that I did not use 5-year gilts, I used the gilt with the highest coupon with 5 years-ish to maturity.

TJH

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375130

Postby GoSeigen » January 9th, 2021, 1:11 pm

tjh290633 wrote: I do not have the details of the prices of the individual stocks at the end of the period


I posted them earlier. They can be downloaded from here to verify:

https://www.dmo.gov.uk/data/gilt-market ... nd-yields/


GS

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375165

Postby Newroad » January 9th, 2021, 2:11 pm

Hi JohnW.

Thanks for the link, interesting read. Please note, you/they are preaching to the converted - if I can achieve a similar outcome to the one I am after at low(er) cost, e.g. an ETF of UK gilts with similar maturity etc - then I am happy to go with that. You will note earlier - and I don't think anyone answered - I was asking if anyone knew how VAGP was managed, e.g. when do they buy (at issue?) when do they sell (at redemption or earlier?).

As your link observes, convenience is an important factor, and the more I explore the less convenient I think running a bond ladder within one of the UK tax free wrappers (SIPP/ISA) will be. Which morphs back to previous paragraph - can I get something off the shelf which I almost right at the right cost?

I like Vanguard, both the principle and the practise, and in that context, also like VGAP and it's c7 year maturity for my ongoing accumulation phase. However, I would be less comfortable with VGOV and its c18 year maturity on retirement. However, there'll no doubt be a different mix of products from Vanguard and its competitors when the time comes, so I'll make a judgement then.

Regards, Newroad

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375212

Postby Newroad » January 9th, 2021, 3:38 pm

Hmm.

Let me ask the "how does VAGP do what it does" question another way.

The ETF tracks the "Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index". I haven't got a Bloomberg subscription, so I can't read any explanation from the horse's mouth. However, the next Google link down says as follows ...

"The index is designed to track the market capitalized weights of the global investment-grade bond market and is comprised of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index and the Bloomberg Barclays Global Aggregate ex- USD Float Adjusted RIC Capped Index (USD Hedged)."

So, whilst the average maturity is around 7 years, this appears coincidental (based on current issuance) rather than a deliberate attempt to be "intermediate maturity" by design. This may also explain the same for VGOV - the UK government has probably (quite sensibly - good work DMO) issued more long dated (cheap?) debt - forcing the average maturity out.

This may not matter much for my own circumstances as discussed with JohnW - the average maturity is unlikely the change a lot quickly - so it remains a good choice during our accumulation phase. But it's probably not good news for VGOV - it's unlikely to get shorter in maturity (IMO) and if anything is likely to get longer.

But back to the original question - it looks like VAGP just simply acquires the proportionate market cap weighted holding of each investment grade bond covered by the index and holds it for as long as it exists - presumably to redemption in almost all cases.

Regards, Newroad

PS As an aside, I also went to this page

https://www.trackinsight.com/en/index/11931

where if you go down to the historic data graph for the index, it looks like around a 1.5% loss for the year - as opposed to VAGP's 3.26% gain (FT Data) despite low costs and small tracking error. This suggests that VAGP's gains this year have all been based on currency risk (being a global bond ETF) - something for me to consider when I note its performance - and more consistent with the reduction in global interest rates as perceived.

But then, I recall that VAGP is GBP hedged, so I'm probably no further on in understanding than when I started :(

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375342

Postby tjh290633 » January 9th, 2021, 11:22 pm

GoSeigen wrote:
tjh290633 wrote: I do not have the details of the prices of the individual stocks at the end of the period


I posted them earlier. They can be downloaded from here to verify:

https://www.dmo.gov.uk/data/gilt-market ... nd-yields/


GS

Not any more, you can't. https://reports.tradeweb.com/ now.

TJH

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375352

Postby JohnW » January 10th, 2021, 12:40 am

Newroad wrote:I was asking if anyone knew how VAGP was managed, e.g. when do they buy (at issue?) when do they sell (at redemption or earlier?).

I don't have the foggiest idea. But here's a trick - actually the problem: some bond funds have a long duration that suits us when young, as longer bonds ought, and often, have better returns, but don't suit when we're older. And, we might expect a bond fund's duration not to change much.
Is this the solution: buy two bond funds, same type of bonds (for credit risk) but one has a short duration and one has a long duration. As you get older you progressively change the proportion of your bond money which is distributed between these two funds, since the 'overall' duration of your two bond funds is a weighted average of the two?

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375439

Postby Newroad » January 10th, 2021, 12:11 pm

Hi JohnW.

That would be a reasonable synthetic approach to the problem. However, in the Vanguard world (my preferred ETF provider) there are currrently no such two Gilt ETF's - so I would need to look further afield. Actually its a little worse than that - it would be better for me if VAGP were longer maturity and VGOV shorter in context.

Further, if that further field follow a "market cap" approach, I can't see how they can avoid pushing maturity out if the UK is issuing more longer term debt (as per my hypothesis) - unless they specifically exclude it as part of the mandate - or perhaps more likely, they find an index that does so.

Regards, Newroad

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375471

Postby GoSeigen » January 10th, 2021, 1:35 pm

tjh290633 wrote:
GoSeigen wrote:
tjh290633 wrote: I do not have the details of the prices of the individual stocks at the end of the period


I posted them earlier. They can be downloaded from here to verify:

https://www.dmo.gov.uk/data/gilt-market ... nd-yields/


GS

Not any more, you can't. https://reports.tradeweb.com/ now.

TJH


??????!

In your previous post YOU were the one saying you couldn't find prices. Now you are telling me that my link doesn't have the prices but YOU know where they are? I downloaded them from the page I linked to. Did you even read that page? Honestly you have made this thread incredibly difficult. Why don't you simply say whether your figures were wrong or not, especially as you now seem to know where to get prices from?


GS
EDIT/P.S. It's looking to me very much like TJH quietly did this little exercise, got his return figures completely wrong and then based a decade of anti-gilt rhetoric ("Gilts are useless because you're guaranteed a capital loss", etc) on his dodgy spreadsheet!
P.P.S. And by the way I can't find prices on TJH's link without logging in. Where are they?

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375493

Postby dealtn » January 10th, 2021, 2:49 pm

GoSeigen wrote:
tjh290633 wrote:
GoSeigen wrote:
I posted them earlier. They can be downloaded from here to verify:

https://www.dmo.gov.uk/data/gilt-market ... nd-yields/


GS

Not any more, you can't. https://reports.tradeweb.com/ now.

TJH


??????!

In your previous post YOU were the one saying you couldn't find prices. Now you are telling me that my link doesn't have the prices but YOU know where they are? I downloaded them from the page I linked to. Did you even read that page? Honestly you have made this thread incredibly difficult. Why don't you simply say whether your figures were wrong or not, especially as you now seem to know where to get prices from?


GS
EDIT/P.S. It's looking to me very much like TJH quietly did this little exercise, got his return figures completely wrong and then based a decade of anti-gilt rhetoric ("Gilts are useless because you're guaranteed a capital loss", etc) on his dodgy spreadsheet!
P.P.S. And by the way I can't find prices on TJH's link without logging in. Where are they?


He might simply be saying the DMO no longer publish the official end of day prices and yields. This stopped in 2017 with that "service" outsourced to another provider.

That isn't hugely relevant when the years applicable to this example are up to 2013 though.

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375522

Postby Newroad » January 10th, 2021, 4:16 pm

Agreed, Dealtn.

That is why I had to use Investing.com for the approximate yields in my contrived example - as the DMO only ran to 2017 (and even before that, wasn't easy to navigate).

Whether that explains the debate TJH's explanations in his debate with GS is another matter.

Regards, Newroad

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375529

Postby dealtn » January 10th, 2021, 4:35 pm

Newroad wrote:Agreed, Dealtn.

That is why I had to use Investing.com for the approximate yields in my contrived example - as the DMO only ran to 2017 (and even before that, wasn't easy to navigate).

Whether that explains the debate TJH's explanations in his debate with GS is another matter.

Regards, Newroad


In a "previous life" I had daily dealings with the DMO (indeed contributed to those official closing prices). It wasn't the only area "navigation" wasn't the easiest, but in the main a decent organisation and individuals.

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375563

Postby tjh290633 » January 10th, 2021, 6:04 pm

GoSeigen wrote:In your previous post YOU were the one saying you couldn't find prices. Now you are telling me that my link doesn't have the prices but YOU know where they are? I downloaded them from the page I linked to. Did you even read that page? Honestly you have made this thread incredibly difficult. Why don't you simply say whether your figures were wrong or not, especially as you now seem to know where to get prices from?


GS
EDIT/P.S. It's looking to me very much like TJH quietly did this little exercise, got his return figures completely wrong and then based a decade of anti-gilt rhetoric ("Gilts are useless because you're guaranteed a capital loss", etc) on his dodgy spreadsheet!
P.P.S. And by the way I can't find prices on TJH's link without logging in. Where are they?

You have a vivid imagination. I said that I did not have the prices which I used on my spreadsheet, except for that used to dispose of the first gilt. That agrees with the figure you quoted, so I assumed that the others were correct.

I have known for some time where to get gilt prices since the DMO stopped publishing them and have registered with tradeweb to get them, when I need them.

I see that you can get historical prices from the link at the bottom of that page, and indeed have done so. That confirms that the prices were as you said.

Somewhere along the line one or two figures got scrambled, but not enough to make much difference.

TJH

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#375668

Postby GoSeigen » January 10th, 2021, 11:40 pm

Newroad wrote:Agreed, Dealtn.

That is why I had to use Investing.com for the approximate yields in my contrived example - as the DMO only ran to 2017 (and even before that, wasn't easy to navigate).

Whether that explains the debate TJH's explanations in his debate with GS is another matter.

Regards, Newroad


Indeed, the discussion was about 2013 prices which are still published right there on the DMO site.

GS

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#388851

Postby sister1 » February 22nd, 2021, 6:26 pm

@Newroad - Have you considered iShares UK Gilts 0-5yr UCITS ETF (IGLS)? According to JustETF: "The FTSE Actuaries UK Conventional Gilts 0-5 index tracks Sterling denominated UK government bonds (conventional gilts) quoted on the London Stock Exchange, other than index-linked bonds. Time to maturity: 0-5 years." I'm still in accumulation stage, so not in this atm, but would prefer something like this for the future rather than bond ladders as they sound too complicated for me!

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#388858

Postby Newroad » February 22nd, 2021, 6:39 pm

Thanks Sister1.

Yes, that might be useful when the time comes. I'm not sure why I hadn't noticed it before.

I agree about the ladder - not conceptually though, but rather practically. I would still (at point of retirement) prefer to take the ladder approach, but it seems just to hard to do as a UK retail investor. It's different in the US where you can subscribe directly to government bond issues.

Regards, Newroad

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#388873

Postby scrumpyjack » February 22nd, 2021, 7:00 pm

If you have to have a bond ladder, perhaps you should consider one in a stronger currency than GBP? Swiss Francs?

Sterling has always been on the weaker side of currencies. Personally I would never go there but I know others who did not experience the 1970's have a different view. But these days it is so much easier to think on a wider field than just the UK.

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#388880

Postby Newroad » February 22nd, 2021, 7:10 pm

Hi ScrumpyJack.

During my accumulation phase (i.e. now) I have nothing UK specific - everything is global, both in equities and bonds.

However, in retirement phase, I would look to more closely match assets with liabilities. This would like require a UK, or a UK/Australia mix, of such things. See earlier reply to DSPP on this.

Regards, Newroad

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#388882

Postby 1nvest » February 22nd, 2021, 7:13 pm

The UK repeatedly stuffs its citizens on both the financial and health fronts. In the US government employees can buy into bonds that guarantee the 10 year yield and guarantees no capital losses. Inflation bonds (TIPS) are also 'easy'. In contrast the UK pretty much withdrew inflation bonds (NS&I) from its citizens. HMG should be rebranded as HMCM (crisis managers, more often of its own making) IMO :)

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Re: Preparing a Bond Ladder (via Interactive Investor?)

#389026

Postby dealtn » February 23rd, 2021, 8:53 am

1nvest wrote:The UK repeatedly stuffs its citizens on both the financial and health fronts. In the US government employees can buy into bonds that guarantee the 10 year yield and guarantees no capital losses. Inflation bonds (TIPS) are also 'easy'. In contrast the UK pretty much withdrew inflation bonds (NS&I) from its citizens. HMG should be rebranded as HMCM (crisis managers, more often of its own making) IMO :)


How is the UK different? You can buy both conventional and indexed linked government bonds. The NS&I products are different to US treasuries and TIPS as equivalents..


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