New to bonds: what to expect?

masters02

Hi all,

Having sorted out investments in equities, I've decided to keep some of my portfolio in short-term bonds. I've decided to stick to high quality corporate bonds.

What yield would be considered reasonable or good? Could you give me examples of high credit rated, good-yielding corporate bonds?

I've considered bond index funds (such as vanguard) but their rates are so low that I'm afraid of inflation eroding them.

I've been put off the complexity of buying bonds and the extra due diligence needed for them, so I would appreciate any help with this.

gadgetmind

You won't find any short duration bonds from high quality companies with any yield that I'd call "good".

I use Vanguard bond ETFs (SLXX and ISXF, the latter because I hold a fair bit of bank fixed income directly, which I want to dilute) but I don't expect much from them now other than mild downside. However, I thought that when I acquired them 1-2 years ago, and I haven't been right yet!

xylophone

http://www.thisismoney.co.uk/money/guides/article-1714423/Corporate-bonds-A-guide-investing.html

might be worth a read.

DominicH

Yes, in theory the yield simply reflects the risk. Pick the yield you want and accept the risk that comes with it. If there were some high-yield, low-risk bond out there, the market would be on it in a flash and the yield would drop. Unless you believe that you know something that the bond market doesn't...

masters02

Thanks for the advice. I'll look at some bond index ETFs.

Another question! I've been reading that bond prices generally rise during a recession. Is that due to the (generally) decreasing interest rates, or something else?

jennyjenssen1990

Yes, I totally agree with you all, to earn high profit, high risk is needed, but just to make yourself on safe side do research well. Bonds with low risk will not give that much yield.

Radiantsoul

masters02 wrote: »

Thanks for the advice. I'll look at some bond index ETFs.

Another question! I've been reading that bond prices generally rise during a recession. Is that due to the (generally) decreasing interest rates, or something else?

Decreasing interest rates and also a "flight to safety" effect. If you knew shares were certain to fall it would make sense to sell them and repurchase them later. The proceeds from share sales might be used to purchase bonds, so the excess demand would drive up the price.