Dipping my toe into corporate bonds - Advice requ...

[EdGasket]

Performance has been flat over the past year as inflation is still benign and equity markets holding up. But with everyone printing money like there's no tomorrow to reduce the real cost of debt, inflation or maybe even hyper-inflation will kick in at some point. Then maybe those funds will be due for another leg up.

[EdGasket]

Originally Posted by gadgetmind

BTW, here are current stats for a selection of index linked gilts.

http://www.fixedincomeinvestor.co.uk...dexLinkedGilts

What do you notice about yields to redemption?

The yield to redemption can only be based on the current, rather low, inflation prediction. The actual redemption price which depends on the actual rate of inflation could be much better.

[gadgetmind]

Originally Posted by EdGasket

The yield to redemption can only be based on the current, rather low, inflation prediction. The actual redemption price which depends on the actual rate of inflation could be much better.

True, but the *real* yield to redemption will always be negative on these, just not as negative as non-index linked gilts under the same circumstances.

As for hyper-inflation, HMG have two mechanisms to fight this, one is to unwind QE by selling those gilts again and the other is to raise interest rates.

Don't get me wrong, I do indirectly hold linkers (mainly UK and US), but I do *not* regards them as being any kind of safe haven, far from it.

[EdGasket]

No they are not a safe haven but safer than conventional bonds with inflation looming. There's not much else to protect from inflation apart from gold and property shares.
See the conclusion on page 9 of this Guide to IL Bonds:

http://www.goldmansachs.com/gsam/doc...nked_bonds.pdf

"Regardless of how inflation moves in the near term, history has
shown that spikes in inflation can occur without warning,
particularly after long periods of low inflation. Thus, the best time
to hedge a portfolio against inflation can be before it starts rising."

[gadgetmind]

That advice was probably right in 2010, and those who bought then will have done well, but those who buy now ...

[EdGasket]

Originally Posted by gadgetmind

That advice was probably right in 2010, and those who bought then will have done well, but those who buy now ...

I haven't noticed an inflation spike yet; I am thinking of a rate into the 20's like we had in the 1970's ! You ain't seen nothing yet.

[gadgetmind]

I'd still rather be holding equities under such circumstances.

[EdGasket]

Originally Posted by gadgetmind

I'd still rather be holding equities under such circumstances.

...but not the ones with large borrowings (high interest payments due to rising interest rates to curb the inflation)

[gadgetmind]

As the future is cloudy, I'm going to stick with my usual principle of "own lots of different stuff and rebalance periodically".