Introduction to Bonds

[pds2008]

I am new to the world of bonds and I would appreciate some recommendations of good sources of information about investing in this area. After a recent injection of cash my non pension investments are Cash 35%, IT's 35%, Equities 30%. I am recently retired so my focus is tax efficient income for the next few years until my pensions kick in. At the same time I am also looking for greater balance in my portfolio and will ultimately be moving investments to less risk averse areas.

Any suggestions would be welcome - thanks

Yell

[AleisterCrowley]

A browse on Monevator may be a good starting point (search on bonds - the Monevator article links start below the other wider google results)
https://monevator.com/SearchResults/?q=bonds


Typical article (see links to similar at the bottom)
https://monevator.com/understanding-bond-index-funds/

I have this book, but haven't read it yet..
https://www.amazon.co.uk/Sterling-Bonds ... 8&qid=&sr=

[formoverfunction]

WiseAlpha Bond Academy

https://learn.wisealpha.com/

3 units, all free: 91 lessons, CPD Accredited Course.

Instructor George Flynn

George has 15+ years’ experience in credit. He is a Managing Director at Everest Research, a Deep Dive Independent High Yield Research Firm and owner of European High Yield Online. He started his career at ECM Asset Management where he worked as a portfolio analyst, trader and senior research analyst. He was hired as a Senior Credit Analyst in the High Yield Team at Pictet, one of Europe’s largest High Yield mandates. He has a broad skill set that has allowed him to implement a Quantamental approach to credit research as well as developing and implementing in house research and portfolio reporting solutions. He has contributed to CreditMarketDaily.com and has been quoted in the financial press. You can follow him on twitter @EuroYield

[Gan020]

WiseAlpha Bond Academy

https://learn.wisealpha.com/

3 units, all free: 91 lessons, CPD Accredited Course.

Instructor George Flynn

George has 15+ years’ experience in credit. He is a Managing Director at Everest Research, a Deep Dive Independent High Yield Research Firm and owner of European High Yield Online. He started his career at ECM Asset Management where he worked as a portfolio analyst, trader and senior research analyst. He was hired as a Senior Credit Analyst in the High Yield Team at Pictet, one of Europe’s largest High Yield mandates. He has a broad skill set that has allowed him to implement a Quantamental approach to credit research as well as developing and implementing in house research and portfolio reporting solutions. He has contributed to CreditMarketDaily.com and has been quoted in the financial press. You can follow him on twitter @EuroYield

I haven't read the wisealpha lessons so have no opinion on that. Careful consideration is required over platform risk with WiseAlpha.

[Laughton]

A useful site to browse:-

https://www.fixedincomeinvestor.co.uk/x ... iscussions

Lots of people on there in the same boat as you and many of them long term and knowledgeable.

[1nvest]

At the same time I am also looking for greater balance in my portfolio and will ultimately be moving investments to less risk averse areas.

Any suggestions would be welcome - thanks

Gilts = you lend to the state, where the state sets interest rates, can drive inflation, and sets taxation of nominal 'gains' (interest). Safe? For whom? Low year on year volatility that may just pace inflation in gross terms can still get hit. If lost opportunity costs means that stocks doubled in real terms whilst you held 'safe' assets that stayed the same (paced inflation), and then stocks fall back 33%, then they're still 33% ahead. In the mid 1970's I think it was when inflation was up at 15%, interest was 15%, taxation was relatively high even for basic rate taxpayers. If a third of that interest went to the taxman then you were down -5% in a single year in real (after inflation/taxation) terms. Repeated over a number of years could have seen a substantial decline in real value.

If you move to corporate bonds, then they tend to reward more, in reflection of greater risk. The market will price in the premium over gilts as being reflective of the anticipated default rate.

Present day inflation bonds (index linked gilts) are priced to lose around half their value for the longer dated end. Pension funds have to hold them and are in part valued by them, which has driven prices high, yields low (negative real). As they buy more to fill their obligations so that drives prices even higher/yields lower, so they have to buy even more. Sooner or later that will unwind, potentially with rapid moves/losses (self feeding don't have to hold as many so sell some more, which lowers prices/raises yields so they sell even more).

Shorter dated end is the better choice IMO. For modest amounts, less than the £85,000 depositor protected amounts under a single umbrella company, buy fixed rate 1, 2, 3, 4, 5 year bonds, and buy another 5 year as one bond series matures. First google search item https://www.gocompare.com/savings/fixed-rate-bonds/ where best protected from taxation risk i.e. ISA'd.

[AleisterCrowley]

buy fixed rate 1, 2, 3, 4, 5 year bonds, and buy another 5 year as one bond series matures

Meaning fixed term savings accounts rather than bonds (although they are often called 'bonds')?

There have been several debates here and on Monevator regarding the wisdom (or otherwise) of putting 'non equities' /low risk cash into bonds, given the painfully low yields available currently, and the significant downside in some cases

[fca2019]

One I invest in is Invesco High Yield Fund (UK) which invests in UK corporate and government debt and aims for high yield.

[88V8]

A useful site to browse:- https://www.fixedincomeinvestor.co.uk/x ... iscussions
Lots of people on there in the same boat as you and many of them long term and knowledgeable.

The FII Discussion Boards vanished some time ago as far as I am concerned, perhaps it's just my adblocker.
Yes, it was a useful site.

V8

[formoverfunction]

A useful site to browse:- https://www.fixedincomeinvestor.co.uk/x ... iscussions
Lots of people on there in the same boat as you and many of them long term and knowledgeable.

The FII Discussion Boards vanished some time ago as far as I am concerned, perhaps it's just my adblocker.
Yes, it was a useful site.

V8

It's still there. They have been discussing Bruntwood 2 in the last few days. You need to allow java as far as I can tell, I use EFF's products for privacy, site specific "allowing" will reveal the chat.

[JohnW]

The Bond Book, by Annette Thau.

[Pheidippides]

I'm an ex-Govvie Bond trader and Risk Manager.

Govvie Bonds (and Govvie Bond Funds) are super-safe but massively overbought due to QE and regulatoory capital pressures - there seems to be little value there.

Corp Bonds - I would NOT recommend trying to pick individual corporate bonds yourself.There is way too much event and single-name risk and, as a private investor, you have no tools with which to mitigate either.

In my opinion, only Corporate Bond Funds are suitable for private investors.

Regards

Pheid

PS Full disclosure - my portfolio contains no FI investnents whatsoever outside of a "Lifestyle" Pension plan

[1nvest]

Bonds are a mid to longer term high risk luxury . Can smooth down shorter term volatility when added to a stock portfolio but stock investors are typically mid to longer term investors (not interested in shorter term fluctuations).

More appropriate for planned/intended spending in the shorter term.

[1nvest]

buy fixed rate 1, 2, 3, 4, 5 year bonds, and buy another 5 year as one bond series matures

Meaning fixed term savings accounts rather than bonds (although they are often called 'bonds')?

Bills, Notes, Bonds ... yes strict terminology is oft absent.

[GoSeigen]

buy fixed rate 1, 2, 3, 4, 5 year bonds, and buy another 5 year as one bond series matures

Meaning fixed term savings accounts rather than bonds (although they are often called 'bonds')?

Bills, Notes, Bonds ... yes strict terminology is oft absent.

Yes, but let's be clear. This is the Gilts and Bonds board and that means negotiable instruments, not savings products. The OP asked about tradeable bonds, not savings.

OP: Moorad Choudhry wrote a superb textbook on bonds for the mathematically inclined and if you need to delve deeper. Like others though, I also feel this is becoming a niche area. I am only buying obscure corporate bonds these days.

https://www.amazon.co.uk/Introduction-B ... 047068724X

GS

[88V8]

.... if you need to delve deeper.

It is a pretty technical area.
By luck, I have yet to come unstuck too much, but the simplest things can trip one up.
Example: 1SBB 7.875% looks pretty good value at 90p. But there was a reset in 2014 to 5.9884% and then in 2019 to around 4%.
Most trading platforms don't carry such information, one has to delve around for it, and one has to read the prospectus to find exactly what one is buying.

If one is not that keen, funds will do all that work for you.

At present, prices of individual retail Bonds, and Prefs, are pretty high. Although yields of 5% are easy enough if one isn't concerned about potential capital falls.
And having said 'retail', some brokers are quite restrictive in the instruments they will allow us to trade, especially if one is not a HNWI.

V8

[Gan020]

.... if you need to delve deeper.

It is a pretty technical area.
By luck, I have yet to come unstuck too much, but the simplest things can trip one up.
Example: 1SBB 7.875% looks pretty good value at 90p. But there was a reset in 2014 to 5.9884% and then in 2019 to around 4%.
Most trading platforms don't carry such information, one has to delve around for it, and one has to read the prospectus to find exactly what one is buying.

If one is not that keen, funds will do all that work for you.

At present, prices of individual retail Bonds, and Prefs, are pretty high. Although yields of 5% are easy enough if one isn't concerned about potential capital falls.
And having said 'retail', some brokers are quite restrictive in the instruments they will allow us to trade, especially if one is not a HNWI.

V8

I agree. It is imperative you read the prospectus to understand what you are actually buying. Just before Christmas someone was buying BBYB prefs in quantity at a price which indicated they were not aware of the redemption date as their return was about 0%. Of course maybe they had their reasons that are not so obvious, such as they wanted to create a capital loss and pay interest but they could have done that without paying a crazy high price.

btw 1SBB was reset at 4.6007% in 2019.

[AleisterCrowley]

Although interesting, this is getting a bit off topic as the OP says; "I am new to the world of bonds and I would appreciate some recommendations of good sources of information about investing in this area."