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

bery_451

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.

Does our pensions have to include bonds too?

Thrugelmir

bery_451 said:

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?

What do you think funds much of the mortgage market now? It's not retail deposits. 

Cus

bery_451 said:

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.

Does our pensions have to include bonds too?

Thankfully not for us retail investors. More a bank thing.

bery_451

Cus said:

bery_451 said:

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.

Does our pensions have to include bonds too?

Thankfully not for us retail investors. More a bank thing.

What you mean? I hear that employees that are digging further into their pensions containing bonds and UK equity markets so its like a pre-selection instead of customisation.

Customisations allow your pensions to be exposed to other thriving markets that can max out your pensions.

bery_451

Thrugelmir said:

bery_451 said:

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?

What do you think funds much of the mortgage market now? It's not retail deposits. 

What is it then?

bowlhead99

bery_451 said:

Cus said:

bery_451 said:

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.

Does our pensions have to include bonds too?

Thankfully not for us retail investors. More a bank thing.

What you mean? I hear that employees that are digging further into their pensions containing bonds and UK equity markets so its like a pre-selection instead of customisation.

You asked whether our pensions have to include bonds. The answer was they do not have to include bonds - if you are self-selecting the components of your pension's investment portfolio it isn't mandatory to include any bonds at all.

Whereas banks and other financial institutions such as insurance companies, defined benefit pension schemes and sovereign wealth funds have little choice but to hold bonds. That's because they will have a need for some liquid and income-paying or low volatility assets to be able to meet their objectives - and any cash balances they hold would get lower interest rates than retail customers can get, while being exposed to  potentially significant counterparty risk if they gave the money to another bank (no FSCS protection for such investors).

bery_451 said:

Thrugelmir said:

bery_451 said:

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?

What do you think funds much of the mortgage market now? It's not retail deposits. 

What is it then?

A chunk of it (though not the majority, under normal conditions) is RMBS.

To your earlier question, yes falling house prices is bad for RMBS, just as the government announcing that UK mortgage providers must offer a three month payment holiday if customers said they were in difficulty or if their tenants had trouble paying the rent, is also bad for RMBS.

If you looked at the index scores for UK RBMS in Q2 versus Q1 or 2019, you'd see that most of the indicators looked pretty bad - forecast unemployment up, forecast GDP growth negative, forecast house price growth negative, net mortgage lending down; delinquency rates up (at least on non prime assets), prepayment rates down. All of those things are bad for the collateral held by the RMBS issuers. The silver  lining being base rates falling to the floor, furlough schemes and other various fiscal or monetary schemes like grants, loan guarantee and credit schemes, term funding scheme for SMEs etc, which aim to keep the economy in a position where people have enough income or business revenues to keep servicing their debts, meaning the RMBS is still solvent as long as it has cash to get it through the unanticipated payment holidays.

Cus

bery_451 said:

Cus said:

bery_451 said:

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.

Does our pensions have to include bonds too?

Thankfully not for us retail investors. More a bank thing.

What you mean? I hear that employees that are digging further into their pensions containing bonds and UK equity markets so its like a pre-selection instead of customisation.

Customisations allow your pensions to be exposed to other thriving markets that can max out your pensions.

I meant that you are not indirectly required to hold a certain percentage of your balance sheet in low risk assets, unlike banks who are subject to capital adequacy rules.  My original comment was to give one reason, in response to someone asking why bonds are being bought with negative yields