Is now a good time to buy bonds?

Albermarle

dllive said:

csgohan4 said:
...into income and Wealth preservation trusts. 

What are these? Can you give examples? Thanks

A WP trust , is a managed investment trust . The objective is to preserve capital as much as possible in all market conditions, whilst producing modest long term growth at the same time.. They are a little bit similar to a multi asset fund with a conservative risk profile ( say around 40% equities ) but they also hold cash , gold and they can move the asset allocation around as they see fit. 

JohnWinder

Or are they:

'As part of your Inheritance Tax planning, you may want to consider putting assets in trust – either during your lifetime or under the terms of your Will. Putting assets in trust – rather than making a direct gift to a beneficiary – can be a more flexible way of achieving your objectives. For example:'  https://www.mercierallen.co.uk/2019-guide-wealth-preservation/trusts/

ivormonee

I've had an email from an email account "bondlaunch@southernelectricbonds" offering a fixed rate bond paying 3.773%. Don't know quite how this email ended up in my inbox but it seems a very good offer. In fact, it seems so good it's very likely to be a scam. Has anyone else had any email or text or phone call regarding this particular bond and, if so, perhaps can shed some light on it?

macman

Southern Electric Power Distro is a genuine product, but that yield doesn't necessarily mean it's a good investment:

https://www.hl.co.uk/shares/shares-search-results/s/southern-electric-5.5-07-06-32-gbpvar

masonic

ivormonee said:

I've had an email from an email account "bondlaunch@southernelectricbonds" offering a fixed rate bond paying 3.773%. Don't know quite how this email ended up in my inbox but it seems a very good offer. In fact, it seems so good it's very likely to be a scam. Has anyone else had any email or text or phone call regarding this particular bond and, if so, perhaps can shed some light on it?

Why do you think it is a good offer? Corporate bonds pay rates of anywhere from 1% to 10% depending on credit risk. The Southern Electric bond in question has a running yield of 3.773%, but you have to buy it at a 45% premium to face value, so your actual returns if held to maturity would be 1.2%, and your capital is at risk. Most likely someone is hoping you don't understand how bonds work and would think you'd get 3.773% instead of the 1.2% you'd actually receive. They are probably also hoping you'll think it is a savings account, not a loan to a company which could default on its debt.

JohnWinder

Not sure about that.

'Running yield is the annual income on an investment divided by its current market value. Running yield is a calculation that divides the income from dividends (for stocks) or coupons (for bonds) by the market price of the security; the value is expressed as a percentage. "Running" refers to a continuous investment, such as a bond held to maturity.'

'the nominal yield which is calculated by dividing the annual coupon payments by the face value of the debt instrument, the running yield uses the current market price of the bond instead of the face value as its denominator.'

https://www.investopedia.com/terms/r/runningyield.asp

The 3.773%/year, being high, might simply represent the risk of default being higher than some lower yielding bonds. ??

Alexland

masonic said:
instead of the 1.2% you'd actually receive.

Most likely you wouldn't receive anything (or not for very long) because the money would just be stolen not invested in the bond.

barnstar2077

ivormonee said:

I've had an email from an email account "bondlaunch@southernelectricbonds" offering a fixed rate bond paying 3.773%. Don't know quite how this email ended up in my inbox but it seems a very good offer. In fact, it seems so good it's very likely to be a scam. Has anyone else had any email or text or phone call regarding this particular bond and, if so, perhaps can shed some light on it?

Any unsolicited email / call / letter offering you a deal should be avoided at all costs.  Why would anyone risk it?  Also, I think you should blank out some of that email address so you are not giving them free advertising.

JohnWinder

dllive said:

this thread: https://www.financialthing.com/best-tracker-funds/
Do you agree with the author? (I know Im opening a can of worms asking that!  )

That's pretty much the message that's been seeping through to the amateur investment community for the last couple of decades. Robin Powell gave it a good nudge with his documentary https://www.evidenceinvestor.com/video/win-losers-game-full-version/?sf_paged=9. Lars Kroijer has advocated popularly, Tim Hale has written in detail how to execute it. Let's hope it's right because it's getting a big following.

Following the advice in that article would give as suitable a portfolio as you'd get from most believers in that approach, and the best one(s) will only be known at the end of each of our investing timescales. Nonetheless, he argues for diversification, and then prefers a US equity fund over a global fund because the returns have been better for 12 years. That's inconsistent advice, and it's folly to be confident the past will be repeated. Read up on 'home bias' and other views on equity trackers to decide for yourself.

His bond fund is very popular, but some people think it simpler to take your risks with equities and choose the safest bonds - government ones, and probably not all your own country's. However, it's probably tweedle dumb and tweedle dee with those two. But keep reading and decide for yourself.

masonic

JohnWinder said:

Not sure about that.

'Running yield is the annual income on an investment divided by its current market value. Running yield is a calculation that divides the income from dividends (for stocks) or coupons (for bonds) by the market price of the security; the value is expressed as a percentage. "Running" refers to a continuous investment, such as a bond held to maturity.'

'the nominal yield which is calculated by dividing the annual coupon payments by the face value of the debt instrument, the running yield uses the current market price of the bond instead of the face value as its denominator.'

https://www.investopedia.com/terms/r/runningyield.asp

The 3.773%/year, being high, might simply represent the risk of default being higher than some lower yielding bonds. ??

In this case, the coupon of the bond is 5.5%, the running yield is 3.773% - obtained by dividing 5.5% by the current price of £145/£100. The running yield doesn't take into account the capital loss that is suffered when the bond is redeemed at par value. It is what you might be able to obtain if you can sell the bond to someone else at the same price long before it matures. The number that takes into account the effect of holding to maturity is the yield to maturity (YTM), which is 1.2% for this bond.

The Investopedia article conflates running yield and YTM when in fact they are not the same. It contradicts itself later in the article where it states running yield "measures the return that an investor will expect if s/he held the bond for one year" (in fact this is also incorrect, you would only achieve that return if the bond price at the end of this period is the same as it was at the start of the period). If you believe you can buy a bond like this and achieve the running yield as an overall return when holding to maturity, then you will be sorely disappointed.

You are correct that the running yield is proportional to the perceived risk of default when the bond is far from maturity. When it approaches maturity, the market value tends towards the face value, so in this case the market price will decrease and the running yield will increase - unless it is heading for a default.

The actual return you get from holding the bond and then selling it before maturity is dependent on what happens to the price of the bond while you are holding it. It is possible to obtain a worse result than the YTM without the bond defaulting.