Learning about investments in bonds

[Dod101]

I am bemused. If I were Mel, I would just buy a corporate bond fund or two and let someone else do the research. In fact that is what I have done. I understand the principle of individual bonds but they are not something I would buy on an individual basis.

Dod

[GoSeigen]

I am bemused. If I were Mel, I would just buy a corporate bond fund or two and let someone else do the research. In fact that is what I have done. I understand the principle of individual bonds but they are not something I would buy on an individual basis.

Dod

Blimey, this from a guy who buys shares!

I've had outstanding returns buying bonds, starting with more than 100% gain on Gilt-edged securitues bought in 2006/7, and some 500% gain on corpoate fixed interest some five years later. Which bond fund do you recommend for similar stellar opportunities?


GS

[rippleog]

Twenty-Four Income Fund (TFIF) is my nap for bond fund currently..

It yields 5.9% (quarterley dividend)
Underlying Investments are ABS and CLOs - excellent credit risk if managed by experts which these guys are
underlying are primarily floating debt rather fixed - protection against interest rate rises
An Investment Trust - so will not get squeezed by an implosion of bond market liquidity
Currently trading at NAV where is has been at a premium previously

2 year return has been 12.98% compared to Gilts @ 1.7% (IGLT) and Corporates @ 5.54% (SLXX)

[Dod101]

Blimey, this from a guy who buys shares!

I've had outstanding returns buying bonds, starting with more than 100% gain on Gilt-edged securitues bought in 2006/7, and some 500% gain on corpoate fixed interest some five years later. Which bond fund do you recommend for similar stellar opportunities?

The OP was writing about relatively modest amounts 5-10k she said and I am sorry but I do not think investing that much is worth the sort of research which she is proposing to undertake. We have all had outstanding success from time to time in shares and no doubt bonds, but I would simply buy a bond fund because apart from anything else, buying one or at most two individual bonds seems to me to be unnecessarily risky.

Dod

[Wozzitworthit]

I have been looking at Twentyfour products over past couple of days - considered them last year but then somebody must have knocked at the front door or something as I haven't done since

The monthly income fund (not that I particularly want a monthly payment) also seems to have done well 6% over a year plus a bit extra with the final month's payment.

I'll have a look at the one you mention now

(Also looked, again at UKMD - price has been steadily dropping for a while now, might reach a point at which to have a tiny dabble)

Woz

[Alaric]

buying one or at most two individual bonds seems to me to be unnecessarily risky.

The same applies to shares of course, but with the risk comes the possibility of a much higher return. Bonds only go up when interest rates fall or when their credit rating improves (or both). Presuming that negative (money) interest rates are an impossibility, they are about as low as they ever could be.

[Dod101]

Actually negative interest rates are not an impossibility. I am sure that in some currencies (Swiss Franc?) banks will charge you a percentage of your deposit for the privilege of holding your cash for you.

Also if Alaric is right that interest rates are only going one way (up) then the outlook for the capital value of bonds is not very inspiring.

Dod

[AleisterCrowley]

This appears at first glance to be an interesting article , although I have only skimmed so far (due to work/life issues )
https://www.sellwoodconsulting.com/rise ... ing-rates/
Credit to Monevator for linking to the article I think - but can't remember!!
Lot's of good bond stuff if you search on Monevator...

[colin]

A verrry interesting analysis of potential bond returns, the forward looking 10 year projections of asset classes look interesting too, think I shall download and archive to review in 2028.
Thanks for a useful post.

[cinelli]

Twenty-Four Income Fund (TFIF) is my nap for bond fund currently..

TFIF received a recommendation in the Telegraph last week. The point made was that it is currently at a discount and that this is unusual.

Cinelli

[AleisterCrowley]

Twenty-Four Income Fund (TFIF) is my nap for bond fund currently..

It yields 5.9% (quarterley dividend)
Underlying Investments are ABS and CLOs ..

What's a CLO?

[rippleog]

CLOs or Collateralise Loan obligations....

so basically a bundle of loans which are typically tranched and carry a spread over libor according to their credit rating

[vrdiver]

I read it, but my sample is only the Foreword/Preface/Intro so difficult to tell!! I will prob get a copy when there's a cheap second hand one available
(being rather careful with my cash)

This site is a good read, apologies if it's been linked to already
https://www.fixedincomeinvestor.co.uk/x/default.html

If you know what you're willing to pay, camelcamelcamel is a good way to track the price (as well as see the historic price, so you can estimate the chances of your desired price materialising!)

https://uk.camelcamelcamel.com/Introduc ... 047068724X

VRD

[TheMotorcycleBoy]

Hi all,

We are still trying to research more about bonds. (The Mark Glowrey book "Sterling Bonds And Fixed Income handbook" has arrived, the first 100 or so pages read, and we are now getting more au fait, with the various yield/price/duration etc. type calculations).

I decided to now take a walk through GoSeigen's earlier stream of consciousness, and try to make a further study of the AnglianWtr 2023 (XS0089553282) bond.

I'm going to walk you through what I am thinking and doing to research this bond and answer some of the questions you might have.

Here goes, my stream of consciousness! Maybe follow though the steps yourself...

Whilst we were pleased to see that our attempt to calculate the current "running yield" was a match to that listed to the HL site today, i.e. we used:

100 / 126.08 * 6.875 = 5.453

(where 126.08 is the price at yesterday's close)

We are still struggling to with one or two terms and making sense of the prospectus.

Firstly why is the "issue price" on the HL site 98.83? Does this also mean the price at redemption is 98.83? After rubbing my head, I then note the prospectus states

"Issue price: 98.825 per cent"

So is the usage of the term per cent a cryptic (to the naive) way, of stating the redemption value is actually 100.00?

I guess what we saying is that a clarification of the terms "issue price", "redemption price" and "par" would be grand at this stage - not seen it in Mark's book yet - but will keep at it.

Secondly, I notice a discrepancy in the quoted value of the coupon. All the public listings of trades of this instrument (e.g. HLs and IIs broker sites) state a figure of 6.875%, however the prospectus quite clearly states 6.625%. What's going on? At what point did the investment become slightly more lucrative, and presumably the change has never formally documented...?

Well sorry about all the questions but we are eager to get our facts straight (and don't repeat another "Castle Trust" mishap), and for now we are going to continue reading through the data and analysing this particular bond as instruction.

Matt and Mel

[Alaric]

Firstly why is the "issue price" on the HL site 98.83? Does this also mean the price at redemption is 98.83? After rubbing my head, I then note the prospectus states

"Issue price: 98.825 per cent"

So is the usage of the term per cent a cryptic (to the naive) way, of stating the redemption value is actually 100.00?

I guess what we saying is that a clarification of the terms "issue price", "redemption price" and "par" would be grand at this stage - not seen it in Mark's book yet - but will keep at it.

The difference between 98.83 and 98.825 is rounding to two decimal places.

Issue Price is the price paid by those who bought the bond when first issued. There may have been a lot of them, but it doesn't affect anyone buying later.

Redemption Price is the price at which the issuer would buy it back from a holder. This might be at the end of the designated term when they have to, or earlier if they wanted to get the bond off their books. It's like repaying a mortgage.

"par" is shorthand for paying 100 as a redemption price per 100 of nominal.

If I know these things it's because over 40 years ago as an Actuarial student, I had to study and pass an exam in compound interest. In those days, the examiners used to delight in devising Bonds with the most convoluted terms possible, which the student was expected to price or calculate the yield.

[TheMotorcycleBoy]

The difference between 98.83 and 98.825 is rounding to two decimal places.

Yes. I had figured that out!

So given that on the prospectus for this particular bond it said.

"Issue price: 98.825 per cent"

Am I to infer that the borrower is saying "we are issuing this bond for 98.825% of the price at which we will redeem it at it's scheduled maturity date"? And hence for this bond the redemption/par value is 100?

Sorry to seem overly pedantic, but I've been advised here to take notice of details in the prospectus; and to a newcomer, usage of a number just slightly less than 100, and the appearance of the word per cent lead me to no clear understanding of the pricing of this bond except for what I've just iterated above.

Issue Price is the price paid by those who bought the bond when first issued. There may have been a lot of them, but it doesn't affect anyone buying later.

Yes, agreed. The exact issue price is largely irrelevant to the secondary market. But of course the value at redemption is not necessarily, (neither is the term "par" as this quoted name is used in the yield/price/etc formulae, and presumably equates to redemption value), which is why I'm trying to tie in the obtuse remark (Issue price: 98.825%) at the top end of the prospectus.

Redemption Price is the price at which the issuer would buy it back from a holder. This might be at the end of the designated term when they have to, or earlier if they wanted to get the bond off their books.

Yes, sure. And as it is not explicitly stated in the prospectus, are we just to assume that as being 100 for this bond.

If I know these things it's because over 40 years ago as an Actuarial student, I had to study and pass an exam in compound interest. In those days, the examiners used to delight in devising Bonds with the most convoluted terms possible, which the student was expected to price or calculate the yield.

No worries. I'm a computer programmer - so equally familiar with the game of abstract terminology, and overloaded meanings!

Many thanks,
Matt

[Alaric]

Yes, sure. And as it is not explicitly stated in the prospectus, are we just to assume that as being 100 for this bond.

That is the way the market operates. Mind you some clever lawyers at Aviva seemed to think that the word "irredeemable" didn't mean that Aviva couldn't "return the capital" at par. This was in the context of a market presumption that "irredeemable" meant there was no redemption date and that the income payments would continue for ever or at the very least could only be terminated with the agreement of both the issuer and the holders.

[swill453]

That is the way the market operates. Mind you some clever lawyers at Aviva seemed to think that the word "irredeemable" didn't mean that Aviva couldn't "return the capital" at par. This was in the context of a market presumption that "irredeemable" meant there was no redemption date and that the income payments would continue for ever or at the very least could only be terminated with the agreement of both the issuer and the holders.

That was preference shares, not bonds.

Scott.

[Alaric]

That was preference shares, not bonds.

From the viewpoint of the investor in fixed income, they are much the same thing, setting aside legal, taxation and distress differences.

[swill453]

From the viewpoint of the investor in fixed income, they are much the same thing, setting aside legal, taxation and distress differences.

Is that a joke? As in "apart from the sanitation, the medicine, etc., what have the Romans ever done for us?"

In a thread from a novice investor asking about bonds I think it's a potentially confusing tangent.

Scott.