PIBS vs undated bonds; and risk

[Matthew]

Amid the current low market I'm looking to shift some of my SIPP (@ HL) into bonds and/or gilts.

I think I've got the measure of how they work, but eg looking at the prices (I can't post links but eg HL > Shares > Bonds & Gilts > Prices) I see there are some bonds with no maturity date (eg Bank of Ireland and Leeds Building Society).

How do these differ - in theory and/or practice - from the bonds in the PIBS section?

Also, while I understand gilts are largely risk-free (at least in terms of defaulting), how does one (a neophyte like me) go about finding/researching/assessing the risk of corporate bonds? Eg how often do bonds default in general?

[Gan020]

Amid the current low market I'm looking to shift some of my SIPP (@ HL) into bonds and/or gilts.

I think I've got the measure of how they work, but eg looking at the prices (I can't post links but eg HL > Shares > Bonds & Gilts > Prices) I see there are some bonds with no maturity date (eg Bank of Ireland and Leeds Building Society).

How do these differ - in theory and/or practice - from the bonds in the PIBS section?

Also, while I understand gilts are largely risk-free (at least in terms of defaulting), how does one (a neophyte like me) go about finding/researching/assessing the risk of corporate bonds? Eg how often do bonds default in general?

Welcome to the world of bonds.

In relation to your question about risk and default the easier place to start to look at the risk is the yield to maturity. I know this probably isn't the answer you are looking for but broadly most bonds especially if issued in size of £100m or more will be correctly priced and the institutions who will be the predominent owners will have worked out the risk.

Once the issue size gets down to around £50m relying on institutional holders to assess the risk for you becomes inappropriate imho and Ihave found that PI's tend to not fully perceive risk and are often overpay for bonds.

After that you are going to need to read the prospectus and the accounts of the company concerned.
Broadly my check list is:
1. Does the bond have a parent company guarantee?
2. What security are you getting?
3. Where does the bond sit in the subordination ranking?
4. Where does the bond sit in the age profile of debt?

Finally a word about some bank and insurance bonds and PIBS. These instruments paying high coupons contain terms and conditions which mean the coupon may not be paid in certain circumstances, may never be repaid and/or may convert to equity. There's no free lunch when it comes to bonds.

[Matthew]

In relation to your question about risk and default the easier place to start to look at the risk is the yield to maturity. I know this probably isn't the answer you are looking for but broadly most bonds especially if issued in size of £100m or more will be correctly priced and the institutions who will be the predominent owners will have worked out the risk.

This is hugely helpful, thank you - I knew there is no definitive answer in investing, but your checklist has sent me in the right direction to research a bit more.

Pending checking the individual terms etc, is there any broad practical difference between PIBS and bonds with no maturity? Are they effectively the same thing?

[formoverfunction]

You might find this a good resource for understanding the world of bonds.

https://www.europeanhighyield.online/

They are associated with

https://www.wisealpha.com/

European High Yield are interesting in that they provide a commentary on the bonds that WiseAlpha offer a fractional representation of. Recently SSE,which might also be interesting to the equity holders.

I have a high yield portfolio with WiseAlpha that's been profitable and useful in understanding the market. With over 50 holdings over there, some are available on ORB, but the vast majority are OTC. To build a portfolio like that might cost c£5m and provides exposure, and understanding, of bonds that aren't usually available to retail investors because of the high level of capital required. Usually £100,000 per line.

Interestingly, there's consultation going on at the FCA at the moment on that subject. They are considering opening up the market so that retail investors in the UK have the opportunity to use bonds to a greater extent, like out American cousins who have portolio with much higher levels of "income" via the $4 trillion market they can participant in. Basically reducing the capital hurdle. There was a article in the FT recently about it.

In a slightly different way Abundance

https://www.abundanceinvestment.com/

Are offering their own UK version of "muni's" that I believe are also under discussion with the FCA, so that they can offer larger, over £8-10 million, issues for Councils with out going through the process of offering a full 300 page Prospectus. Yields are quite low, but are likely to be on an upward trajectory. I haven't participated as my Yield on WiseAlpha is in double digits and the YTM a few points higher. They represent a very small proportion of my overall portfolio.

WiseAlpha don't offer access Dollar based bonds, but they do offer a smaller number of Euro bonds. There's often discussion/questions about US bonds, but none offered so far. They are also offering Gilts on the platform from £100 directly on the platform or £1000 via select wealth managers.

[NearlyThere]

You might find this a good resource for understanding the world of bonds.

https://www.europeanhighyield.online/

That's a great resource. Thanks!

[formoverfunction]

No problem. It's a newish site that's still developing, but it does give a view on how pro's analysis a bond.

If it's of any help, there is an rss feed, you can join and see updates as they get posted.