The letter B for 'Bonds' and also for 'Boring'

bery_451

New to Bonds, lots of questions....

So basically there's 2 types of Bonds that is Government & Corporate correct?

UK Government Bonds are called Gilts?

Why the image of bonds is mostly associated with older pensioners and also have that boring image to it that younger investors stay away from?

Is there always Inverse Correlation between Bonds & Stocks? 

What's the correlation between Bonds and the world reserve currency $ Dollar Index and commodities Gold/Silver?

Are bonds interest rates are fixed on them during the duration of the bonds or can you buy bonds with tracker rates like for example a bond that tracks inflation rates or central bank interest rates?

The longer durations bonds pay higher interest but if central banks raise interest rates then there's a risk of losing out on a higher paid new interest bond unless the investor sells his/her bond at a loss and buy the newer higher interest paying bond right?

Why Investors are flocking to bonds now pushing bond prices to record highs when the interest rates are not that attractive to attract investors to begin with? Are these new buyers buying short term or long term bonds? Do these buyers expect interest rates to go negative increasing bond prices further? Also why higher bond prices reduces the interest rate yield curve paid on them?

What's the correlation between central banks doing Quantitative Easing/Stimulus and long term bonds and the rates on these bonds? Do central banks use QE to buy these long term bonds and why inflation remained low between 2-3% when this is happening?

Back in the 1980's interest rates were high around 15% and from there it went all the way to nearly 0% now, so that means there's a correlation with high inflation and higher interest rates that is coupled together?

Lastly a good economic indicator that is GDP of a country that shows how good the country is doing economically that correlates to higher interest rates and higher bond yields and vice versa but why inflation rate is high during good economic times which is confusing?

Finally the UK Government debt is over £2 trillion which is the same or higher than UK GDP. Lets put that into perspective:
1000 x 1000 = 1million
1000 x 1 million = 1 billion
1000 x 1 billion = 1 trillion x 2 = UK Government deficit debt.

Which agency rates the UK government credit rating and what's the UK credit rating now and what's the lowest credit rating a government can go down to and if it goes below that then that means the UK government has defaulted on their loan debt and we lose all bonds?

bowlhead99

Have you tried googling for the answers to any of these sixteen questions?

Thrugelmir

There's also RMBS as a type. 

dunstonh

I started a reply but gave up as the questions just kept coming and google would answer most of them.

coachman12

bowlhead99 said:

Have you tried googling for the answers to any of these sixteen questions?

Whilst I agree with what you say, I and I suspect most other posters, expect a 1000 word reply.
A one line reply is a real pleasure that I am sure so many of us savour with enormous pleasure. 
Can we look forward to more of this new and most welcome change of policy ?

Another_Saver

Well here goes

bery_451 said:

New to Bonds, lots of questions....

So basically there's 2 types of Bonds that is Government & Corporate correct?
ish, there's alsoquasi-governmental and supranational institutions, and emerging markets and corporate junk bonds are often considered distinct from developed markets governments and investment grade corporate bonds.
UK Government Bonds are called Gilts?
Yes

Why the image of bonds is mostly associated with older pensioners and also have that boring image to it that younger investors stay away from?
Because they are (generally) guaranteed, fixed income investments; less volatile, more predictable and less risky than stocks. The only return you get is the yield to maturity or running yield, they don't grow in value (but the value can wobble in between the date the bond is issued and redeemed).
Is there always Inverse Correlation between Bonds & Stocks? 
No, the correllation changes over time and over the very long-term is close to 0.
What's the correlation between Bonds and the world reserve currency $ Dollar Index and commodities Gold/Silver?
Probably 0
Are bonds interest rates are fixed on them during the duration of the bonds or can you buy bonds with tracker rates like for example a bond that tracks inflation rates or central bank interest rates?
Both. The UK and other governments issue inflation-linked gilts, I don't know of central-bank-linked bonds.
The longer durations bonds pay higher interest but if central banks raise interest rates then there's a risk of losing out on a higher paid new interest bond unless the investor sells his/her bond at a loss and buy the newer higher interest paying bond right?
No. If interest rates rise or fall, the prices of bonds adjusts to reflect that so there would be no advantage or disadvantage (other than dealing fees) of selling one bond for another identical one.
Why Investors are flocking to bonds now pushing bond prices to record highs when the interest rates are not that attractive to attract investors to begin with? Are these new buyers buying short term or long term bonds? Do these buyers expect interest rates to go negative increasing bond prices further? Also why higher bond prices reduces the interest rate yield curve paid on them?
Who knows.

The last question is basic mathematics. Very simplified explanation: If you pay £100 for a bond paying £1 a year for 30 years, and the government starts offering 30 year bonds paying £2 a year, the price of your bond must fall by about £30 to reflect that [insert unnecessarily academic stuff here]. If it did not fall, you could sell it for £100 and buy a higher yielding bond for that same £100, that is arbitrage, the market will adjust and balance and correct to make that almost impossible.
What's the correlation between central banks doing Quantitative Easing/Stimulus and long term bonds and the rates on these bonds? Do central banks use QE to buy these long term bonds and why inflation remained low between 2-3% when this is happening?
More QE = more money flowing into the bond market, supply/demand, bond prices go up, yields go down. As for the bit about inflation there's no single clear explanation but China, demographics, globalisation, the internet, and the fact the QE was invested rather than spent on consumption are common explanations.

Back in the 1980's interest rates were high around 15% and from there it went all the way to nearly 0% now, so that means there's a correlation with high inflation and higher interest rates that is coupled together?
Arguably, but there is no clear causality either way. Again, China, globalisation, demographics and other phenomena have been suggested. The very high inflation of the mid-70s to mid-80s was particularly triggered by the 1972-4 oil crisis and end of the Bretton Woods system, power of trade unions demanding pay rises that just got passed on to consumers etc. Some government's priorities were "full employment at any cost, let inflation run wild", other government's priorities were "inflation under control at any cost, let interest rates run wild" and it has been suggested thatthe high inflation of the 1960s-1980s was a deliberate method to raise the price level of the economy to shrink the value of the post-war national debt and make itr easier to pay off.
Lastly a good economic indicator that is GDP of a country that shows how good the country is doing economically that correlates to higher interest rates and higher bond yields and vice versa but why inflation rate is high during good economic times which is confusing?
Not as confusing as this question. In theory, good economic times = bond investors saying "we want more interest to take the risk of not buying stocks that will grow with the economy!" and bad economic times = government borrowers saying "get in line bond investors, the rate is 1% take it or take your changes in the falling stock market".
Finally the UK Government debt is over £2 trillion which is the same or higher than UK GDP. Lets put that into perspective:
1000 x 1000 = 1million
1000 x 1 million = 1 billion
1000 x 1 billion = 1 trillion x 2 = UK Government deficit debt.
Yes we know, thanks for the perspective. It was higher during and after the Napoleonic Wars and World Wars but was paid off. The UK government has been in debt since 1692, and before then... does anyone know if we've ever had a monarch who wasn't in debt?

Which agency rates the UK government credit rating and what's the UK credit rating now and what's the lowest credit rating a government can go down to and if it goes below that then that means the UK government has defaulted on their loan debt and we lose all bonds?

There is so such single credit agency or a single standardised credit rating system. The big three are Fitch's, Moody's, and Standard & Poor's. There is no magical credit rating that triggers a default, the rating is a description not a definition, nor is it the only peice of information bond investors take into account. The debt of the UK government is backed by the taxes generated from the UK economy, roughly 1/4 is owned by the Bank of England, 1/4 by foreign investors, and 1/2 by us locals. So by electing a government that defaults on the national debt all we're doing is shooting ourselves in the foot. All cash, bank and NS&I deposits would become immediately worthless.

coachman12

As someone said----just google it  ( and then copy/paste  )

DireEmblem

... and also for Bazinga

Cus

One reason for the demand for bonds is that many financial institutions, banks etc have regulatory and capital requirements that force them to hold certain % in fixed income asset classes.

Thrugelmir

Cus said:

One reason for the demand for bonds is that many financial institutions, banks etc have regulatory and capital requirements that force them to hold certain % in fixed income asset classes.

They have little other choice for cash deposits they hold. 

bery_451

Thrugelmir said:

There's also RMBS as a type. 

Hmm mortgage backed securities. Wasn't this that caused the financial crash back in 2008?
Once furlough scheme ends and there will be mass evictions and mass repossessions because people cant pay their mortgages/rent, then is it a good idea to get RMBS security? Does falling houses prices is bad for RMBS?