Long dated gilt funds lost value recently?

ratechaser

Possibly a basic question, but my understanding has always been that Gilts - and especially long dated ones - tend to do well in turbulent markets like these - flight to safety etc, so yes yields drop, but gilt funds benefit as the gilt price itself rises.

Issue is that I'm not seeing this at the moment - I made an effort to de-risk my pension about 6 months ago and move the weighting towards gilt funds and away from equities. And what I'm seeing is that even those gilt funds have lost value - not admittedly as much as my remaining equity funds but even so, it's not quite as good a hedge as I'd anticipated.

so without going into fund specifics, are there macro reasons why long dated gilt funds may also not be doing that well right now?

[Deleted User]

I guess some of the clever people will be around in a minute. But my thoughts are that liquidity is king at the moment, and as such the USD is king of kings. Our gilts come down the pecking order. Now handing over to somebody who knows what they are talking about.

jsinc

There could be many reasons - e.g. assumptions of (or actual) Government stimulus and spending and borrowing/bond issuance, expectations of higher inflation, yields got very low very fast so just reversing somewhat, greater risk premium on even Government debt, market liquidity problems, general panic as people sell anything for cash even Government bonds,

For context though, 30 year Gilt yields are only back to where they were mid January, unlike equities:

https://www.marketwatch.com/investing/bond/tmbmkgb-30y?countrycode=bx

Bear in mind that long dated bond funds are still quite risky. The longer dated a bond is and the smaller its coupon, the greater it's sensitivity to interest rate changes (duration) and the greater its volatility. That's because the average time to receive cash flows is greater than shorter-dated bonds.

However that doesn't mean shorter-dated bonds are necessarily less risky over any given period. Some invest in long Gilts or long bonds generally to partially offset changes to annuity rates. Whether that's the best idea if the plan or otherwise is down to individual or adviser opinion

Thrugelmir

Don't follow the Gilt markets per se. Which funds do you hold?  The fund manager should be publishing a regular factsheet. Have you looked at these and read the commentary? 

[Deleted User]

Government bonds (including in the US) have done rather well compared to stocks but more recently we’ve seen some sell-off. A couple of possible reasons:
1. Investors want cash and are selling their most liquid assets which still carry value.
2. Investors are anticipating that the governments will flood the debt market with new issues. This pushes bond yields up and value down. 

Having said this, I bought $100k of TIPS in early January, and they are up 5%. Wish I bought more...

ratechaser

Thanks all and sorry for not coming back sooner, this new forum is continually crashing on my iPhone...

anyway, yes have seen the recent sell off of gilts, which is quite interesting (trans: rather annoying) as I'd always seen them as a fairly binary hedge to equities. Never mind, let's see if the current £200bn govt purchase will stabilise things.

About 15% down in total from a month ago. Could be worse... just put 20k into a new Vanguard SIPP to get the 45% tax relief, now to work out where best to invest it! 

Linton

Perhaps a major reason for gilts falling is that companies and other institutional holders who keep their "savings" in gilts need to convert them to cash to pay staff etc now that income isnt coming in from customers. Private investors are only a small part of the gilt market.

Thrugelmir

Amount of issuance in the pipeline may cause indigestion. Despite BOE buyback policy. 

jsinc

ratechaser said:

Thanks all and sorry for not coming back sooner, this new forum is continually crashing on my iPhone...

anyway, yes have seen the recent sell off of gilts, which is quite interesting (trans: rather annoying) as I'd always seen them as a fairly binary hedge to equities. Never mind, let's see if the current £200bn govt purchase will stabilise things.

About 15% down in total from a month ago. Could be worse... just put 20k into a new Vanguard SIPP to get the 45% tax relief, now to work out where best to invest it! 

It shouldn't be down 15% from a month ago, more like about the same.

That price may be because your fund lags the market by a day or two (when 30 year yields have dropped about 40bp).

These are volatile times though, so who knows what next week brings.

ratechaser

jsinc said:

ratechaser said:

Thanks all and sorry for not coming back sooner, this new forum is continually crashing on my iPhone...

anyway, yes have seen the recent sell off of gilts, which is quite interesting (trans: rather annoying) as I'd always seen them as a fairly binary hedge to equities. Never mind, let's see if the current £200bn govt purchase will stabilise things.

About 15% down in total from a month ago. Could be worse... just put 20k into a new Vanguard SIPP to get the 45% tax relief, now to work out where best to invest it! 

It shouldn't be down 15% from a month ago, more like about the same.

That price may be because your fund lags the market by a day or two (when 30 year yields have dropped about 40bp).

These are volatile times though, so who knows what next week brings.

Yes you're right, there is something a bit odd going on here. To Thrugelmir's earlier question, the 2 gilt funds I'm in are 

1) L&G Over 5 Year Index-Linked Gilts Index Fund
2) L&G Over 15 Year Gilts Index Fund

I'm invested equally in these 2, in 2 separate old employers schemes. One of them is currently valuing 10% lower than a month ago, the other is 15% lower. I need to take a closer look at the funds but one looks about 2% up over a month and one about 2% down. So I should be flat... can't believe that a 1-2 day lag accounts for that big a swing.

Time for some digging...

Linton

From Trustnet data it looks like the over 15 year fund is only priced once a week.  on the 11th March it rose by 10% and then dropped by much the same amount a week later.  The 5 year fund which is priced daily has dropped by 20% since its maximum on the 9th March.  This possibly suggests that my explanation a few posts back may be correct - companies are more likely to use short dated gilts for holding cash than long dataed ones.