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NWBD regrets?

Gilts, bonds, and interest-bearing shares
Tara
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NWBD regrets?

#502819

Postby Tara » May 25th, 2022, 8:22 pm

Do any NWBD holders regret not taking up the 175p offer last year? A similar offer now would probably get a much higher acceptance, but I assume it will probably be some time before an offer like this is made again.

Padders72
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Re: NWBD regrets?

#502825

Postby Padders72 » May 25th, 2022, 8:49 pm

That is if you will forgive me for saying so a rather silly question. Do those that owned SMP at £15 a share at that point regret not selling? You can't second guess the future, you make your decisions based on the facts pertaining in the present. In a low interest environment, keeping FI made perfect sense, as inflation rises it becomes less desirable, hence the price drops. Why would they make another offer at that level? Today the fair price is lower.

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Re: NWBD regrets?

#502826

Postby GoSeigen » May 25th, 2022, 9:08 pm

Padders72 wrote:That is if you will forgive me for saying so a rather silly question. Do those that owned SMP at £15 a share at that point regret not selling? You can't second guess the future, you make your decisions based on the facts pertaining in the present. In a low interest environment, keeping FI made perfect sense, as inflation rises it becomes less desirable, hence the price drops. Why would they make another offer at that level? Today the fair price is lower.


That's not true though, is it? Not in my estimation anyway. In a low interest environment it makes perfect sense to steadily offload fixed interest because yields are low and the interest rate environment is set for perfection. It's baked in that fixed interest will perform poorly. If an issuer has the backing of shareholders to tender for its preference shares then as private investors should we not take advantage of the liquidity offered? No telling of the future required, the writing is on the wall...

Now, when interest rates are higher and yields more attractive, one can think about buying FI again surely.

GS

Padders72
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Re: NWBD regrets?

#502828

Postby Padders72 » May 25th, 2022, 9:16 pm

GoSeigen wrote:
Padders72 wrote:That is if you will forgive me for saying so a rather silly question. Do those that owned SMP at £15 a share at that point regret not selling? You can't second guess the future, you make your decisions based on the facts pertaining in the present. In a low interest environment, keeping FI made perfect sense, as inflation rises it becomes less desirable, hence the price drops. Why would they make another offer at that level? Today the fair price is lower.


That's not true though, is it? Not in my estimation anyway. In a low interest environment it makes perfect sense to steadily offload fixed interest because yields are low and the interest rate environment is set for perfection. It's baked in that fixed interest will perform poorly. If an issuer has the backing of shareholders to tender for its preference shares then as private investors should we not take advantage of the liquidity offered? No telling of the future required, the writing is on the wall...

Now, when interest rates are higher and yields more attractive, one can think about buying FI again surely.

GS

I don't see either suggestion as a case of true or false, just one of interpretation. While inflation was at 2% the tender price made sense, today it would not (for the institution) since yields have risen and prices fallen. You are talking about unwinding or winding up holdings with an eye on the future, that wasn't what was asked, though it is of course an eminently sensible thing to do.

ps just a thought, and perhaps irrelevant for the OP's question but if inflation really is knocking on the door of 10% and stays that way then it could be thought that many of the FI usual suspects have a long way to fall yet since many are still yielding 6-7%. I know they dont slavishly follow inflation but it is something to ponder. What I mean it, Is it time to buy back in yet I wonder?

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Re: NWBD regrets?

#502840

Postby GrahamPlatt » May 25th, 2022, 10:38 pm

It rather depends on what, if you sold, you recycled the proceeds in to…

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Re: NWBD regrets?

#502872

Postby GoSeigen » May 26th, 2022, 7:44 am

Tara wrote:Do any NWBD holders regret not taking up the 175p offer last year? A similar offer now would probably get a much higher acceptance, but I assume it will probably be some time before an offer like this is made again.


The feeling of those who refused the offer was that it was derisory. They presumably were of the view that inflation would remain close to zero in perpetuity and that in due course a yield spread vs gilts of much less than 4% would come to be thought of as normal, so that a better offer would be forthcoming in the future. Or at the very least they foresaw no danger in just holding in perpetuity and collecting the 5% dividends. I'm not sure they considered a scenario in which those dividends might represent a loss in real terms but it was very much a possibility and discussed around that time on these boards for example.

In recent years I've taken the view that if a company offers to buy its shares and the shareholders accept it's probably because those shareholders represent the smart money and the offer is a good one; I am inclined to accept the cash offered by the company. After all, the aim of a company is to raise capital from its shareholders at a low price and return it to them at a high price, hopefully also with dividends along the way. In the case of NWBD the offer was at a premium to market and I sold all my shares even before the offer closed. So no regrets here; at the time I couldn't put my finger on what exactly would cause a fall in preference share prices (apart from 20-year mod. duration!!) but knew there was a decent probability it could happen.

What has happened since is a classic fixed-interest situation, where investors are suffering both real-terms losses on their dividends and also feel they have no exit because yields have risen/the price has fallen. And unfortunately, being perpetual securities, the only escape is to accept what is bid in the market.

GS
EDIT: To be fair, Padders was one of those who had the right idea a year ago: "a 175p offer may in hindsight look generous in a year or two".

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Re: NWBD regrets?

#502895

Postby Gan020 » May 26th, 2022, 9:54 am

I have been investing longer than I would like to admit and one of the things I have learnt is that the market suffers from "group think" and can take a view that things will always be a certain way. When I say "the market" I mean both institutions and private investors.

What this results in is statements such as:
"house prices only ever go up"
"interest rates won't go over 2% in the next 50 years"
"oil can't fall below $30", "oil is going to $10", "oil is going to $150"

Any and all of these statements can be true for long periods of time which seems to reinforce the group think.

I consider as evidence of this TR61, 0.5% Treasury Gilt 2061 which was issued some 12 years ago.
Chart here: https://www.londonstockexchange.com/sto ... mpany-page
Set the time to max in the filter.
Issued at around 100p in 2010, traded at around 100p for 5 years, then 90p for another 7 years but since Dec has fallen to 59p
It doesn't look like a great trade to me but many bought it over very many years and if interest rates had remained low for 50 years the trade would have been fair enough. All with hindsight of course.

The actual problem I believe has been the central banks who have intervened in every crisis since 2007 to keep the economy going. There has been no jeopardy. And they themselves began to suffer from group think. They threw all traditional economic policy in the bin and went for MMT, QE and negative interest rates. They argued printing money doesn't cause inflation. They they argued it only caused transitory inflation and now they accept inflation does exist but it still not be the result of their actions.


In the end to return to the question NWBD got pushed up to a crazy high price because so much money was printed and it had nowhere else to go. That was clear and obvious to me. What wasn't obvious was when the central banks would stop trying to provide liquidity to the market and therefore where the top might be. What I also find interesting is that according to Wikepedia the excess liquidity from QE is removed from the system by taxation. Now this is moot because imho taxation just moves money from one person to another but of course what we discovered is that when it came down to it politicians weren't willing to tax and thus the central banks will have to do QT and interest rate rises to remove the excess liquidity.

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Re: NWBD regrets?

#502903

Postby 88V8 » May 26th, 2022, 10:24 am

Tara wrote:Do any NWBD holders regret not taking up the 175p offer last year?

I sold some, kept some.
I regret the loss of income, although I did recycle the cash into what was then a better yield.
However, there has been a capital decline on those I kept. Not that it greatly matters to me as an income investor.

I sort of regret not selling all my FI when interest rates began rising, but one gets wedded to things.... and there's always the question of where to put the proceeds. Pretty much everything is off peaks, so whatever I'd bought would likely be underwater now....
I did sell most of my Prefs near the top, over what turned out to be unnecessary concerns about par redemption, so that turned out to be the right thing to do for the wrong reason.

I also kept NATW despite the tender, partly out of sheer buggerance that I wasn't allowed to buy any more of them.
This same line of thinking left me with an attic full of incandescent bulbs, bought right after the EU banned them, 'I'm not going to be told what I can buy mumble mumble'.

V8

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Re: NWBD regrets?

#502909

Postby GoSeigen » May 26th, 2022, 10:52 am

I agree with much of what Gan020 says, but not this:

Gan020 wrote:The actual problem I believe has been the central banks who have intervened in every crisis since 2007 to keep the economy going. There has been no jeopardy. And they themselves began to suffer from group think. They threw all traditional economic policy in the bin and went for MMT, QE and negative interest rates. They argued printing money doesn't cause inflation. They they argued it only caused transitory inflation and now they accept inflation does exist but it still not be the result of their actions.

I don't see that any traditional policy was thrown in the bin. What happened was that they tried the approaches suggested by the prevailing Monetarist dogma for years and it simply failed to have the desired effect. The phrase Fools might remember is "pushing on a string". Krugman wrote a seminal article about it in 1998 IIRC arguing that when inflation and yields fall close to zero then interest rate policy alone would fail to stimulate the economy. CBs turned to QE after the demonstrable failure of monetarist tools.

Further, I'd love to see a quote where a central bank has claimed that "printing money doesn't cause inflation". Maybe Gan020 is getting confused with the MMT crowd (who seem to say that printing money doesn't cause inflation unless it causes inflation)? The whole point of CBs printing money was to cause inflation! In fact Krugman's belief was that Central Banks needed to be reckless in their determination to cause inflation before market expectations would shift and start to price in higher inflation again. The slow raising of rates now is perhaps a test of Krugman's theory and I for one am fascinated to see what happens, because my belief is that the CBs are going to blink and revert to their old inflation-fighting mode and raise rates too high too quickly. I'd then expect to see inflation drop rapidly and perhaps fears of depression reassert themselves. I'd love to be proved wrong but to me everything points this way.



In the end to return to the question NWBD got pushed up to a crazy high price because so much money was printed and it had nowhere else to go. That was clear and obvious to me. What wasn't obvious was when the central banks would stop trying to provide liquidity to the market and therefore where the top might be. What I also find interesting is that according to Wikepedia the excess liquidity from QE is removed from the system by taxation. Now this is moot because imho taxation just moves money from one person to another but of course what we discovered is that when it came down to it politicians weren't willing to tax and thus the central banks will have to do QT and interest rate rises to remove the excess liquidity.



Again, I don't believe the conventional narrative that "money has to go somewhere". It doesn't. Once it is issued it remains issued. It doesn't get consumed like retail goods or get swallowed up when a share is bought, just as shares don't get swallowed up when they are sold, unlike ice creams.

Crazy high prices are simply the corollary of crazy low yields. When the market has such a tremendous aversion to borrowing money then yields fall and by mathematical identity prices have to rise. That's my reading of the situation: everyone is/was so averse to borrowing (for whatever reason, separate discussion) that rates have/had to be near zero to encourage it. Perhaps this inflation spike is a warning that the tide is turning. But I think there are deep-seated structural reasons (demography, zero bound) why, as I said above, low inflation and yields may yet persist.

GS
P.S. "excess liquidity from QE is removed from the system by taxation" sounds like MMT dogma again. Was there a reference in the Wikipedia article?

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Re: NWBD regrets?

#502968

Postby bruncher » May 26th, 2022, 2:50 pm

GoSeigen wrote:
Padders72 wrote:That is if you will forgive me for saying so a rather silly question. Do those that owned SMP at £15 a share at that point regret not selling? You can't second guess the future, you make your decisions based on the facts pertaining in the present. In a low interest environment, keeping FI made perfect sense, as inflation rises it becomes less desirable, hence the price drops. Why would they make another offer at that level? Today the fair price is lower.


That's not true though, is it? Not in my estimation anyway. In a low interest environment it makes perfect sense to steadily offload fixed interest because yields are low and the interest rate environment is set for perfection. It's baked in that fixed interest will perform poorly. If an issuer has the backing of shareholders to tender for its preference shares then as private investors should we not take advantage of the liquidity offered? No telling of the future required, the writing is on the wall...

Now, when interest rates are higher and yields more attractive, one can think about buying FI again surely.

GS


I've been buying, for the first time since the ECN debacle.

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Re: NWBD regrets?

#503054

Postby Padders72 » May 26th, 2022, 7:34 pm

bruncher wrote:
GoSeigen wrote:
Padders72 wrote:That is if you will forgive me for saying so a rather silly question. Do those that owned SMP at £15 a share at that point regret not selling? You can't second guess the future, you make your decisions based on the facts pertaining in the present. In a low interest environment, keeping FI made perfect sense, as inflation rises it becomes less desirable, hence the price drops. Why would they make another offer at that level? Today the fair price is lower.


That's not true though, is it? Not in my estimation anyway. In a low interest environment it makes perfect sense to steadily offload fixed interest because yields are low and the interest rate environment is set for perfection. It's baked in that fixed interest will perform poorly. If an issuer has the backing of shareholders to tender for its preference shares then as private investors should we not take advantage of the liquidity offered? No telling of the future required, the writing is on the wall...

Now, when interest rates are higher and yields more attractive, one can think about buying FI again surely.

GS


I've been buying, for the first time since the ECN debacle.


To reiterate my parting thoughts from earlier though, have they fallen enough to make them attractive? I personally think the stuff yielding 6.5-7% today could within a couple of months as the markets slowly correct be showing more like ~8% or higher. That would put LLPC for instance at ~115p, and BOI at ~160p. If I am right, is now the time to buy? Likewise if you are still holding, do you sit tight and sit it out hoping for better times and harvesting the income, or react since they may lose a further 20%+ of capital value? Interesting times.

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Re: NWBD regrets?

#503094

Postby JohnEdwards » May 27th, 2022, 12:07 am

Having purchased several of these in my drawdown SIPP while they were VERY depressed (courtesy of this group in an earlier guise), I have only ever been a holder in this class of investments as a perpetual source of high income, so I (try to) pay little attention to the market prices.

I have to admit that I had not anticipated a return to high inflation - having lived through the super-high rates of the 70s, I really did believe that we were in a different world - a new paradigm (where have I heard that before!!!!!). Let us hope that it IS temporary.

It is now clear that the best strategy would have been to sell at around the time of the tenders - and buy back at higher yields (but when????), although I am somewhat concerned that the tenders will have reduced the float enough to make repurchasing some of the smaller issues difficult/expensive in any quantity.

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Re: NWBD regrets?

#503139

Postby 88V8 » May 27th, 2022, 10:53 am

Padders72 wrote:To reiterate my parting thoughts from earlier though, have they fallen enough to make them attractive? ....is now the time to buy? Likewise if you are still holding, do you sit tight and sit it out hoping for better times and harvesting the income, or react since they may lose a further 20%+ of capital value?

Attractive, yes, is now the optimal time, I think not.

There will certainly be more rate rises although more slowly as CBs are already losing their nerves, so the SPs have further to fall.
When inflation tops out, that will be the time.

Whether it's worth selling now, perhaps.
I always find it harder to sell than buy. Especially an income stock. Unless one can replace the income, it will need a big fall in SP for the extra shares to offset the income foregone. One needs an income-generating parking place.

So, if I were to take the plunge and sell up, I'd be looking to buy a bond nearing maturity which would give me a decent coupon with the imminent maturity underpinning the SP.
Such as ENQ1, paying 7%.
Problem there is liquidity, but if one trickles in over several days it should be possible.
Enquest's ords are down on the 'windfall' nonsense, but not the bonds.

V8

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Re: NWBD regrets?

#512704

Postby bruncher » July 8th, 2022, 12:37 pm

I believe the original issue of NWBD was 140 million. Does anyone know how many were redeemed?

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Re: NWBD regrets?

#512966

Postby 88V8 » July 9th, 2022, 3:01 pm

bruncher wrote:I believe the original issue of NWBD was 140 million. Does anyone know how many were redeemed?

I believe somewhere there was a post quoted from Investegate that there were 116 mio still outstanding.
So no shortage of liquidity.

V8

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Re: NWBD regrets?

#515627

Postby ChrisNix » July 19th, 2022, 1:06 pm

Hindsight is 20:20. But how many people were predicting 9% US inflation?

Nearly 7% yield now seems reasonable if one believes base rates will peak at 3%.

Or not!

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Re: NWBD regrets?

#515718

Postby GoSeigen » July 19th, 2022, 5:11 pm

Good to see me posting here again ChrisNix. ;-)

ChrisNix wrote:Hindsight is 20:20. But how many people were predicting 9% US inflation?




At least one person. :shock:


GS

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Re: NWBD regrets?

#516258

Postby ChrisNix » July 21st, 2022, 4:47 pm

GoSeigen wrote:Good to see me posting here again ChrisNix. ;-)

ChrisNix wrote:Hindsight is 20:20. But how many people were predicting 9% US inflation?




At least one person. :shock:


GS


It was plain 5% plus was on the cards, but 9% was heroic!

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Re: NWBD regrets?

#517447

Postby oldgamer » July 26th, 2022, 7:44 pm

I hope nobody considers this a partial hijack of the thread, but the the title caught my eye. I am full of regret for selling NWBD the better part of ten years ago. The falling prices do seem like a second a chance. I am looking at retiring in around 10 years, the current yields of NWBD and LLPC are very attractive to me, but am inclined to wait until interest rates are a little higher. I would be looking to invest my entire portfolio in FI or prefs, I am somewhat out of touch of what issues could be redeemed at par or are illiquid and the relative risks, for example would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs (re behaviour of lloyds and Aviva’s attempt at a redemption a few years ago). More generally, could anyone share what percentage of their FI portfolio they would assign to each one of these or similar FI investments?

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Re: NWBD regrets?

#517457

Postby GoSeigen » July 26th, 2022, 8:14 pm

oldgamer wrote:I hope nobody considers this a partial hijack of the thread, but the the title caught my eye. I am full of regret for selling NWBD the better part of ten years ago. The falling prices do seem like a second a chance. I am looking at retiring in around 10 years, the current yields of NWBD and LLPC are very attractive to me, but am inclined to wait until interest rates are a little higher. I would be looking to invest my entire portfolio in FI or prefs, I am somewhat out of touch of what issues could be redeemed at par or are illiquid and the relative risks, for example would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs (re behaviour of lloyds and Aviva’s attempt at a redemption a few years ago). More generally, could anyone share what percentage of their FI portfolio they would assign to each one of these or similar FI investments?


Just to be clear, none of those shares are redeemable. Aviva didn't try to redeem them, they informed the market that they were able to repay holders via a capital reduction. A capital reduction is not an unfettered right of the company like redemption: it can only be exercised with the approval of shareholders, the sanction of the High Court and subject to whatever contractual terms restrict such capital reductions. NWBD seems invulnerable to capital reduction; LLPC and Aviva prefs not so much. However you will hopefully understand from the above caveats that the risk of capital reduction at a par price is share-specific and in any case probably not very high.

Preference shares are cheaper than they have been by some 200bp of yield. On the other hand inflation has risen by some 10%, so the value is not really clear-cut. As usual, whether to buy is probably a tricky call to make; what I do in these circumstances is to leg in to the trade gradually, giving the market time to confirm my buy decision.

GS


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