Dipping my toe into corporate bonds - Advice requested

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  • EdGasket
    EdGasket Posts: 3,503 Forumite
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    gadgetmind wrote: »
    BTW, here are current stats for a selection of index linked gilts.

    http://www.fixedincomeinvestor.co.uk/x/ic-bondtable.html?groupid=IndexLinkedGilts

    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
    gadgetmind Posts: 11,130 Forumite
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    EdGasket wrote: »
    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.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • EdGasket
    EdGasket Posts: 3,503 Forumite
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    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/docs/instgeneral/general_materials/primer/reference_guide_to_inflation-linked_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
    gadgetmind Posts: 11,130 Forumite
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    That advice was probably right in 2010, and those who bought then will have done well, but those who buy now ...
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • EdGasket
    EdGasket Posts: 3,503 Forumite
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    gadgetmind wrote: »
    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
    gadgetmind Posts: 11,130 Forumite
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    I'd still rather be holding equities under such circumstances.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • EdGasket
    EdGasket Posts: 3,503 Forumite
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    gadgetmind wrote: »
    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
    gadgetmind Posts: 11,130 Forumite
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    As the future is cloudy, I'm going to stick with my usual principle of "own lots of different stuff and rebalance periodically".
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
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