Corporate Bonds

earlgrey_3

Ranger8 wrote: »

The replies are appreciated because I was given and took similar advice a couple of years ago by a Halifax FA but for over double that amount, £140k
I get a return of £6k a yr from it but looks to me as though its lost £40k if I was to sell them now, is this correct ?
Should I hold on to the Bonds or what ?

Do you mean the Halifax Corporate Bond unit trust fund or a Halifax bond? 140k in either would be a concern.

eeja

StevieJ wrote: »

If a bond fund can insure away the default risk (I think you have seen the Lex Article above)

HO HO there ...the cost of insuring the bond could remove any incentive to hold it !
Similar disaster with 'insurance' has hit many of the airlines.
Have you not noticed that although their main expense the cost of aviation fuel has dipped dramatically fares have not come down at most airlines ?
The reason is simple...having hedged the price when oil was at $140 a barrel some are now paying up to $200 a barrel !!
We will probably have to wait a full year before the hedged fuel has been used up and for us Brits, we will probably never get a reduction as in a year's time the £ is likely to be quite near parity and most probably much lower than it is today ($1.49) !

baby_boomer

The term "bond" should be banned as it is used to cover so many different investment/savings products, but is preferred because it inspires trust (whether misplaced or not)

"My word is my bond".

Corportate Bonds and With Profit Bonds are both investments where you can lose money.

Fixed Term Bonds are just another way of describing a long term savings account with all the accompanying FSCS guarantees up on the first £50K saved.

eeja

baby_boomer wrote: »

The term "bond" should be banned as it is used to cover so many different investment/savings products, but is preferred because it inspires trust (whether misplaced or not)

"My word is my bond".

Corportate Bonds and With Profit Bonds are both investments where you can lose money.

Fixed Term Bonds are just another way of describing a long term savings account with all the accompanying FSCS guarantees up on the first £50K saved.

Hear hear ...spot on baby-boomer but try telling people to stop saying....
'I don't think so' or 'I don't think that......' !! Logic does not apply in such cases !

StevieJ

eeja wrote: »

HO HO there ...the cost of insuring the bond could remove any incentive to hold it !
Similar disaster with 'insurance' has hit many of the airlines.
Have you not noticed that although their main expense the cost of aviation fuel has dipped dramatically fares have not come down at most airlines ?
The reason is simple...having hedged the price when oil was at $140 a barrel some are now paying up to $200 a barrel !!
We will probably have to wait a full year before the hedged fuel has been used up and for us Brits, we will probably never get a reduction as in a year's time the £ is likely to be quite near parity and most probably much lower than it is today ($1.49) !

OK , so that Lex article is wrong!

EdInvestor

Lokolo wrote: »

How do you lose money with bonds? I thought you put money in and whatever rate you buy them at stays like that until maturity?

This applies to individual bonds/gilts which you biuy and then hold to maturity, not to funds of bonds and gilts where the fund manager will be buying and selling individual gilts and bonds as he sees fit.

Ranger8 said:

The replies are appreciated because I was given and took similar advice a couple of years ago by a Halifax FA but for over double that amount, £140k
I get a return of £6k a yr from it but looks to me as though its lost £40k if I was to sell them now, is this correct ?

This is really the way that bonds and gilts should be used - as a method of obtaining reliable income.

The clue is in the name, "fixed interest". A bond/gilt pays a fixed amount of interest but its capital value will vary.

They are the opposite to cash, which has a fixed capital value, but a variable interest rate.

If you are an income seeker the fluctuations in the capital value may not be a problem. If they are a problem, then buy gilts individually and hold them to maturity - don't buy through the likes of the Halifax.

The returns on bonds and gilts are not very high anyway, so it's better to buy direct so you can avoid charges - which will often knock 20% or more off your return.If you have to pay tax as well, you're effectively making very little, while potentially taking quite a bit of risk in some funds.

eeja

StevieJ wrote: »

OK , so that Lex article is wrong!

You can't buck the market. If you want a bond with a larger than normal market yield, you can get it but the risk factor is higher than for a bond with a lower yield. That risk factor is the insurance premium or cds on the bond.
So you pays yer money and takes yer choice...higher risk equals higher yield .Lower risk means lower yield.
Nevertheless the risk is all subjective....what you might feel risky others might not. So if you were really sure that Taylor Woodrow would not go belly up you could happily enjoy a yield to maturity of 35 % from its bonds.