Is now a good time to buy bonds?

Thrugelmir

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?

Someone is fishing for suckers. 

JohnWinder

Thanks. That article was confusing. It specifically said: 'Running yield, often called yield to maturity (YTM) when in reference to bonds, measures the annual rate of return an investment provides.'

The YTM is actually 'The rate of return on a bond if purchased at the current market price and held until maturity. The calculation assumes all coupons are reinvested at the same rate they are currently being paid at (I think!).'

A trap for young players.

Apodemus

The other trap is that quite often bonds can have a larger spread than other investments, so you may not be buying at the same "market price" that has been used to calculate the yield. As an example, UK Treasury Gilt 3.5% 2045 (T45) currently has a 4.5% buy/sell spread on HL.  Not only will the running yield (currently quoted at around 2.2%) to a new purchaser be a bit less than quoted, but you would need a bigger uplift to get into positive capital value and/or a longer period before the holding has returned sufficient income to be able to sell for any net gain.

Thrugelmir

Apodemus said:

The other trap is that quite often bonds can have a larger spread than other investments, so you may not be buying at the same "market price" that has been used to calculate the yield. As an example, UK Treasury Gilt 3.5% 2045 (T45) currently has a 4.5% buy/sell spread on HL.  Not only will the running yield (currently quoted at around 2.2%) to a new purchaser be a bit less than quoted, but you would need a bigger uplift to get into positive capital value and/or a longer period before the holding has returned sufficient income to be able to sell for any net gain.

Are those live trading prices? Seems an excessively wide spread. 

Apodemus

Thrugelmir said:

Apodemus said:

The other trap is that quite often bonds can have a larger spread than other investments, so you may not be buying at the same "market price" that has been used to calculate the yield. As an example, UK Treasury Gilt 3.5% 2045 (T45) currently has a 4.5% buy/sell spread on HL.  Not only will the running yield (currently quoted at around 2.2%) to a new purchaser be a bit less than quoted, but you would need a bigger uplift to get into positive capital value and/or a longer period before the holding has returned sufficient income to be able to sell for any net gain.

Are those live trading prices? Seems an excessively wide spread. 

Apologies, Thrugelmir, you are quite right!  Checked the current figures and while the HL webpage gives a Sell figure of £153.17 and a buy of £160.17, doing a dummy trade gives a sell price of £156.27 and buy of £157.17, so nowhere near as bad.  The HL figures are further compounded by the "cost" figure on the portfolio being the total purchase price, part of which would be the accrued interest which has subsequently been paid out, whereas the "value" figure is given as their headline "Sell" figure (currently £153.17), giving a slightly more pessimistic view of the current capital value in relation to purchase price.

Thrugelmir

Apodemus said:

Thrugelmir said:

Apodemus said:

The other trap is that quite often bonds can have a larger spread than other investments, so you may not be buying at the same "market price" that has been used to calculate the yield. As an example, UK Treasury Gilt 3.5% 2045 (T45) currently has a 4.5% buy/sell spread on HL.  Not only will the running yield (currently quoted at around 2.2%) to a new purchaser be a bit less than quoted, but you would need a bigger uplift to get into positive capital value and/or a longer period before the holding has returned sufficient income to be able to sell for any net gain.

Are those live trading prices? Seems an excessively wide spread. 

Apologies, Thrugelmir, you are quite right!  Checked the current figures and while the HL webpage gives a Sell figure of £153.17 and a buy of £160.17, doing a dummy trade gives a sell price of £156.27 and buy of £157.17, so nowhere near as bad.  The HL figures are further compounded by the "cost" figure on the portfolio being the total purchase price, part of which would be the accrued interest which has subsequently been paid out, whereas the "value" figure is given as their headline "Sell" figure (currently £153.17), giving a slightly more pessimistic view of the current capital value in relation to purchase price.

No need to apologise! I always treat HL web pages with caution. Not least that the NAV, discount/premium and the top 10 holdings data in Investment Trusts is often well out of date. 

Apodemus

Its the HL end-of-day prices that get me, they can be spectacularly mis-leading, yet tantalising just within the bounds of possibility - on either the up or down-side.  But to be fair to HL, I've seen a few ITs where the share price shown on their webpage is several months out of date!  ...And don't get me started on the ITs that issue an RNS announcing an update on holdings saying the details are on their webpage, then don't actually publish the details for days!