Corporate Bonds

nottingham13

Hi

Is it a good time to buy corporate bonds? I heard its a good time to buy.

Plus does the value of the bond price increase when interest rate falls?

And why are the yields so high on these bonds at the moment?

And what tax do you pay on the yields inside an ISA?

Thanks

dunstonh

Is it a good time to buy corporate bonds? I heard its a good time to buy.

potentially. Yields are running higher than savings rates. However, its a bit like buying equities. Now could be a great time to be buying those but only time will tell if we are at or near bottom.

And why are the yields so high on these bonds at the moment?

various reasons but they have come off the back of 2-3 years of unit price decline.

Plus does the value of the bond price increase when interest rate falls?

traditionally yes. (and vice versa).

And what tax do you pay on the yields inside an ISA?

None. They are classed as fixed interest funds so can claim back the tax.

Remember that not all Corp bonds are the same risk level and there are a wide range of bonds covering multiple sectors.

purch

Plus does the value of the bond price increase when interest rate falls?

When the Bond price increases this reduces the Yield on that Bond. This may or may not coincide with interest rate movements in the general market.

Is it a good time to buy corporate bonds?

Only if you consider the Yield worth the Risk.

As in all investing it is a decision only the individual can make.

You have to take into account the Risks of default, of Inflation rising etc etc

I heard its a good time to buy

I would do my own research, and not rely on others.

stevetodd

nottingham13 wrote: »

Hi

Is it a good time to buy corporate bonds? I heard its a good time to buy.

Plus does the value of the bond price increase when interest rate falls?

And why are the yields so high on these bonds at the moment?

And what tax do you pay on the yields inside an ISA?

Thanks

I've recently been looking at these as alternative to shares for my stocks and shares isa's, I see the advantage that the company doesn't have to have performed very well, just avoid severe problems.

As you say you can wrap them up in an isa and make the interest tax free, if you pay 40% tax then the rates compare well with cash isa's (obvioulsy with a higher but accpetable (at least to me) risk. You have to buy a bond with at least 5 years left and hold it for that long if you want to wrap it in an ISA.
Here is a link to some current available bonds:
http://fixedincomeinvestor.selftrade.co.uk/x/mem_selftrade/bondtable.html?groupid=4

Unfortunately (in more ways than one) I have used up my ISA allowance this year so I can't buy anything just yet. What I will probably do is transfer any tax free interest into my FTSE tracker ISA rather than keep it in cash as they don't pay much interest on cash trhe companies that you buy these through. It's not worth re-investing the interest because of the fees in buying a bond, unless of course the income comes shortly before the following tax year in which case you could keep it as cash for a short while and top it up with the next years ISA allowance and buy another bond.

dunstonh

I've recently been looking at these as alternative to shares for my stocks and shares isa's,

They are not an alternative. They should be used in conjunction with. They can bring the risk down (or up if you pick higher risk versions) but they provide diversification and typicaly perform in a different way to the stockmarket.

stevetodd

dunstonh wrote: »

They are not an alternative. They should be used in conjunction with. They can bring the risk down (or up if you pick higher risk versions) but they provide diversification and typicaly perform in a different way to the stockmarket.

Yes but I already have 35k in shares (which I would be leaving in place) and nothing in bonds! I am talking about future investments so it wouldn't be an alternative as such it would be diversifying within my stocks and shares Isa's, albeit a temporary alternative to gain some balance within my Isa portfolio (also have about 30k in cash Isa's) not huge I admit but I like the tax free aspect so although the amounts are small, the value is good.

purch

Here is a link to some current available bonds:

A quick scan down that list shows some of the risks...

There is a Dixons Group Bond currently yielding over 10%, an AIG Bond yielding over 12% and a Taylor Woodrow Bond currently yielding a whopping 26% :eek:

If you had bought any of those Bonds this time last year the yield would have been far lower and the price far higher.......and you'd be looking at a sizeable capital loss.

Corporate Bond investing should not be considered Low Risk, despite what some people try to make you believe.

stevetodd

purch wrote: »

A quick scan down that list shows some of the risks...

There is a Dixons Group Bond currently yielding over 10%, an AIG Bond yielding over 12% and a Taylor Woodrow Bond currently yielding a whopping 26% :eek:

If you had bought any of those Bonds this time last year the yield would have been far lower and the price far higher.......and you'd be looking at a sizeable capital loss.

Corporate Bond investing should not be considered Low Risk, despite what some people try to make you believe.

You are an 'after timer' the point of time of judgement is now! Not with the benefit of hindsight! There will also be examples of bonds that have improved their position over time too!

Of course there is a risk, but less so than shares!

nottingham13

I was thinking of buying a corporate bond fund inside an ISA for example, New Star Sterling Bond Accumulation Units, with these funds can't you buy and sell when you want?

dunstonh

nottingham13 wrote: »

I was thinking of buying a corporate bond fund inside an ISA for example, New Star Sterling Bond Accumulation Units, with these funds can't you buy and sell when you want?

You can buy and sell when you want. However, why stick with just one fixed interest fund. It is important to diversify and a spread of fixed interest funds will reduce your risk more (unless you buy higher risk fixed interest funds). Eggs all in one basket rarely works best.

sdooley

purch wrote: »

If you had bought any of those Bonds this time last year the yield would have been far lower and the price far higher.......and you'd be looking at a sizeable capital loss.

With bonds, you only face a real loss if you need to sell or if the company can't meet the interest or principal payment. Unlike with a share you have the option of holding to maturity. The exception is open-ended bonds which have a higher risk profile.