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Are Bonds worth considering

Index tracking funds and ETFs
Oggy
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Re: Are Bonds worth considering

#635504

Postby Oggy » December 21st, 2023, 11:30 am

There's two ways to get the capital back. One is you just wait for the gilt to mature and the other is to sell it in the market before it matures.

If you buy, e.g., a 10 year gilt and wait for it to mature then the money will just appear in your account when it does, in 10 years time, and you'll know from the moment you bought it exactly how much that will be, either in nominal terms for conventional gilts or in real (RPI adjusted) terms for index linked gilts.

If, OTOH, you sell it in the market before it matures then you'll get whatever the market is offering, with no guarantees that it won't be less than what you bought it for, maybe a lot less.

There's plenty written on the Gilts and Bonds board, take a look through the list of topics there.

Gilts held to maturity became popular around here in the months following the Truss-Kwarteng debacle, as net of tax shorter term low coupon gilts were offering better returns than equivalent period savings accounts, and indeed I swapped a lot of my savings accounts into such gilts, both conventional and index linked. However, the situation now looks like it's reversed and when the first of those matures next month I'll very likely be putting the money back into normal savings accounts again



Many thanks for this - very useful. I would follow suit and put the money into a high interest savings account but the money is held within two old company pensions - which I would like to transfer over to my SIPP in AJ Bell as

1 The money is tied up in useless funds
2 They don't do drawdown

Adamski
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Re: Are Bonds worth considering

#635517

Postby Adamski » December 21st, 2023, 12:00 pm

Have you considered Vanguard lifestrategy funds? I hold Vls60 which is 40% bonds. They also do a 20/80 and 40/60 versions.

There's lot of bonds skeptics here. But really have to see 2022 as a one off in my opinion, with war in ukraine and interest rate rises hitting everything, but bonds in particular. Now bonds yields are up, and now offering a real return vs inflation, bonds have had a good latest quarter.

I'd wager 2024 bonds could be an outperforming asset class. The main reason equities have done so well in 2023 is the magnificent 7, which distort the returns on world trackers, and arguably are overpriced. If we have recession or stagnation in 2024, bonds may regain their defensive mandate.

GeoffF100
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Re: Are Bonds worth considering

#636329

Postby GeoffF100 » December 26th, 2023, 8:34 pm

Gilt yields have fallen sharply recently. 7 year gilts are now returning about 3.5%. I am inclined to think that the recent rise in equity and bond prices is overdone, but nobody knows what will happen.

richfool
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Re: Are Bonds worth considering

#657479

Postby richfool » April 2nd, 2024, 3:22 pm

GeoffF100 wrote:
JohnW wrote:A 10 year duration fund with drop in price by 20% if interest rates rise 2%. Is that the crash protection you want?

Conversely, if interest rates fall by 2%, a 10 year duration fund rises by 20%. The crash protection comes from a "flight to safety" during an equity crash. That effect is usually larger for longer dated government bonds. Longer duration bonds also usually pay more. That is mostly true now from 6 years onward:

http://www.worldgovernmentbonds.com/cou ... d-kingdom/

Nonetheless, it is sensible to pick a duration that matches your timescales. As already noted bond funds gradually move their average maturity date forwards, which may not be what you want.

Geoff, just picking up on this older post, I had been thinking that IGLS (Gilts of less than 5 years to maturity) would be a better bet than VGOV (Gilts longer than 5 years to maturity).
But, as mentioned above, as bond funds gradually move their maturity dates forwards (as in recycle their holdings), then surely the shorter maturing bonds such as IGLS would be affected by falling interest rates, or the prospect of falling interest rates (i.e. where we are now), sooner than the likes of VGOV?

GeoffF100
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Re: Are Bonds worth considering

#657518

Postby GeoffF100 » April 2nd, 2024, 5:30 pm

richfool wrote:
GeoffF100 wrote:Conversely, if interest rates fall by 2%, a 10 year duration fund rises by 20%. The crash protection comes from a "flight to safety" during an equity crash. That effect is usually larger for longer dated government bonds. Longer duration bonds also usually pay more. That is mostly true now from 6 years onward:

http://www.worldgovernmentbonds.com/cou ... d-kingdom/

Nonetheless, it is sensible to pick a duration that matches your timescales. As already noted bond funds gradually move their average maturity date forwards, which may not be what you want.

Geoff, just picking up on this older post, I had been thinking that IGLS (Gilts of less than 5 years to maturity) would be a better bet than VGOV (Gilts longer than 5 years to maturity).
But, as mentioned above, as bond funds gradually move their maturity dates forwards (as in recycle their holdings), then surely the shorter maturing bonds such as IGLS would be affected by falling interest rates, or the prospect of falling interest rates (i.e. where we are now), sooner than the likes of VGOV?

If interest rates fall, both funds will be immediately affected, but VGOV will rise further because of its longer duration. If interest rates go up, IGLS will fall less, and will benefit from higher interest rates sooner. If interest rates fall, you will be better of with VGOV, and if interest rates rise you will be better off with IGLS. The problem is that nobody knows what will happen to interest rates.

GIL5 is cheaper than IGLS, but is a smaller fund.


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