buying corporate bonds

onetruevoice

Hello all

Any guidance here as to which is the cheapest broker for corporate bonds? I have checked with my bank (first direct) who dont offer corporate bonds just gilts. My wifes bank (barclays) seem to have rather large fees of £75 per trade over £20k plus quarterly management fees.

many thanks

OTV

C_Mababejive

I.m wondering whether an investment grade bond fund would be a better deal than buying individual bonds? Selftrade sell bonds but they charge an annual management fee.

Speaking of fees, if you subscribe to a corporate bond fun which normally has an "initial discount"..if you made regular monthly payments,would the 2nd and subsequent months be charged at the full fee,the initial discount only being applicable to the first months subscription?

DiggerUK

I still cannot understand why anybody thinks corporates and gilts, are a good and safe investment.

And to think that those in private pensions are advised to move into these dodgy "low risk" instruments when nearing retirement, is a scandal awaiting the famous caveat "to ensure that this kind of thing never happens again", when it is all over.

With inflation rising you stand little or no chance for a real return on your investment.
With the recession deepening you stand a good chance you might not even get your money back either.
Don't buy them.

LardyCake

Perhaps you need to know more about the OPs aims before dismissing corporate bonds as "Don't buy"? Maybe the OP wants to hold them to maturity to give a fixed income stream?

@onetruevoice - I've seen this question asked on here several times and have so far not seen any recommendation for a broker. This link maybe of interest:
http://www.londonstockexchange.com/traders-and-brokers/security-types/retail-bonds/retail-bonds.htm

Aegis

DiggerUK wrote: »

I still cannot understand why anybody thinks corporates and gilts, are a good and safe investment.

It's because, compared to equities, they ARE a good and safe investment. You know what you're buying, and the product risk is much lower than equities because (i) the coupon isn't optional (i.e. corporate bond debt is specified in advance and isn't decided by the company like a dividend) and (ii) the debt is secured against company assets with priority given to corporate bond debt over shareholder debt. As such, the risk of losing a lot of money with investment-grade corporate bonds is significantly lower than with equities while still generating a fairly good income yield. They're not inflation-proofed, but the decrease in value due to increasing inflation will be gradual, so it is quite possible to buy and hold for a year or two before selling out in favour of a higher yielding product (and after a while the price will drop to the point where the yield makes the bond worth buying again).

A strategic bond fund manager (as opposed to a pure corporate bond fund) will be able to make some pretty lucrative trades even in an inflationary environment, and will additionally be able to purchase index-linked gilts for inflation proofing if the conventional yields aren't good enough.

Certainly no guarantees there, but most definitely not a sector to simply avoid.

And to think that those in private pensions are advised to move into these dodgy "low risk" instruments when nearing retirement, is a scandal awaiting the famous caveat "to ensure that this kind of thing never happens again", when it is all over.

In terms of risk, the scale goes: Cash < Fixed Interest < Equity/Property funds < Direct Equities < Direct Property < Commodities. Generally as you increase the risk, the potential for growth increases (i.e. what people want in the early stages of pension planning), while you typically want something that isn't going to move much in terms of capital value once you start approaching retirement. A blend of fixed interest and cash is good for this purpose because it combines the security in nominal value (cash) with a decent chance of capital growth (the capital element of fixed interest products) and a higher-than-cash level of income (from the interest yield).

It makes perfect sense if you understand the risks associated with the various asset classes.

With inflation rising you stand little or no chance for a real return on your investment.

Tell that to people who have managed 20%+ returns on fixed interest funds over the last year.

With the recession deepening you stand a good chance you might not even get your money back either.

You know we exited recession some time ago, right? We have to go back into one before it can deepen.

Don't buy them.

Better yet, do. As part of a balanced investment portfolio, as your risk profile dictates (my own risk profile doesn't include them because I prefer higher risk products, but most people would probably benefit from holding these indirectly to tailor their risk profile to their own personal preferences).

onetruevoice

many thanks for the responses

the reason I am looking for corporate bonds is that i am looking for a lowish (compared with the alternatives) risk but fixed income and my intention would be to hold until maturity or at worst sell above par prior to maturity.

I guess the alternative is locking cash away in a two year bank bond (savings not corporate) paying a measily 3.7% which just doesn't appeal

otv

C_Mababejive

Agree with #5 and #6 but the question remains,buy into an investment grade bond fund (acc or income??) or buy blue chip corporate bonds direct and if so,where for least expense?

DiggerUK

Aegis wrote: »

...........You know we exited recession some time ago, right? We have to go back into one before it can deepen......

Well I got to admit, I missed the exit.
And after a scan of the news reports at Bloomberg, I think these two guys have as well.
Mind you, can you trust what you read in the media.

......."Fed Chairman Ben S. Bernanke told Congress on July 21 the outlook is “unusually uncertain.” .........

.......“The overall outlook is weaker than that presented in the May inflation report,” Mervyn King said at a press conference in London. He cited the “persistence of tight credit conditions” and planned budget cuts as risks to growth"......

Aegis

DiggerUK wrote: »

Well I got to admit, I missed the exit.
And after a scan of the news reports at Bloomberg, I think these two guys have as well.
Mind you, can you trust what you read in the media.

......."Fed Chairman Ben S. Bernanke told Congress on July 21 the outlook is “unusually uncertain.” .........

Yes, the US is showing signs that it may re-enter a recessionary phase. However, it exited recession in October last year, so you are extremely behind the times if you didn't spot that one.

.......“The overall outlook is weaker than that presented in the May inflation report,” Mervyn King said at a press conference in London. He cited the “persistence of tight credit conditions” and planned budget cuts as risks to growth"......

We're still in a growing GDP environment, so we're not in recession at the moment. There are some analysts predicting a return to recession, while others are suggesting that growth will be slight, but positive. Few are suggesting that growth will be strongly positive.

JamesU

onetruevoice wrote: »

many thanks for the responses

the reason I am looking for corporate bonds is that i am looking for a lowish (compared with the alternatives) risk but fixed income and my intention would be to hold until maturity or at worst sell above par prior to maturity.
otv

Lots of good info on bonds on this site. Worth going through it to familiarise with some of the options. Plenty of discussion also. Maturity dates, current yields etc too (e.g. see GBP corporate). Bonds a bit pricey right now though, 2009 bull run.

http://www.fixedincomeinvestor.co.uk/x/bondtable.html?groupid=4

But as OPs suggest, could consider bond funds to diversify risk
(including maybe strategic bonds/inflation hedge) and bond etfs.


JamesU

Jonbvn

DiggerUK wrote: »

Don't buy them.

Digger,

You really are a one trick pony!

I have held some corporate bonds in my ISA for some time. They have risen in price by about 20-30% over the last year, plus they are paying a 5%+ coupon.

Remind me of the dividend that all that gold you hold is paying????;)