What and how much cash?

Albermarle

 I notice amongst all this talk about falling bond yields , that most bond funds have fully or partly recovered from the drops earlier in the year . The ones I checked seem to be in fact marginally above where they were this time last year .
I confess to having no idea why though.

JohnWinder

God works in mysterious ways.

And I can only imagine portfolio visualiser uses actual (US) cash interest rates, whatever they were.

Linton

Albermarle said:

 I notice amongst all this talk about falling bond yields , that most bond funds have fully or partly recovered from the drops earlier in the year . The ones I checked seem to be in fact marginally above where they were this time last year .
I confess to having no idea why though.

Having a quick look at the data and commentary on it...

In February there was a sharp fall in gilt prices linked to the good news on Covid vaccination roll out - investors were more prepared to invest in equity and so sold bonds.  Since then prices have been reverting to the previous trend.  This scenario has been particulaly marked with UK gilts as opposed to other developed country bonds where vaccine roll out has ony reached UK levels recently.  

Another related effect is that the February Covid data led to a significant rise in the value of the £ which would have decreased the £ value of foreign government bonds.

Albermarle

Linton said:

Albermarle said:

 I notice amongst all this talk about falling bond yields , that most bond funds have fully or partly recovered from the drops earlier in the year . The ones I checked seem to be in fact marginally above where they were this time last year .
I confess to having no idea why though.

Having a quick look at the data and commentary on it...

In February there was a sharp fall in gilt prices linked to the good news on Covid vaccination roll out - investors were more prepared to invest in equity and so sold bonds.  Since then prices have been reverting to the previous trend.  This scenario has been particulaly marked with UK gilts as opposed to other developed country bonds where vaccine roll out has ony reached UK levels recently.  

Another related effect is that the February Covid data led to a significant rise in the value of the £ which would have decreased the £ value of foreign government bonds.

You are right about foreign bond funds, and they actually only have recovered a small part of the lost ground.
However what is still surprising is that there has been a lot of negative comment about corporate/investment bonds and any bonds dated more than a few years, but these seem to have generally recovered as well. 

bostonerimus

Buying individual bonds and create a bond ladder isn't easy for lots of people. That's why in the US there are "target maturity" bond funds that hold bonds that mature on a single date. They hold to maturity and you just get the principal and interest back. These take out the risk and bother of directly holding bonds for the consumer.

https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders

Linton

bostonerimus said:

Buying individual bonds and create a bond ladder isn't easy for lots of people. That's why in the US there are "target maturity" bond funds that hold bonds that mature on a single date. They hold to maturity and you just get the principal and interest back. These take out the risk and bother of directly holding bonds for the consumer.

https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders

They sound extremely useful and a much better solution to the bond problem than a simple tracker..  Unfortunately I have not found any UK equivalent.

Linton

Albermarle said:

Linton said:

Albermarle said:

 I notice amongst all this talk about falling bond yields , that most bond funds have fully or partly recovered from the drops earlier in the year . The ones I checked seem to be in fact marginally above where they were this time last year .
I confess to having no idea why though.

Having a quick look at the data and commentary on it...

In February there was a sharp fall in gilt prices linked to the good news on Covid vaccination roll out - investors were more prepared to invest in equity and so sold bonds.  Since then prices have been reverting to the previous trend.  This scenario has been particulaly marked with UK gilts as opposed to other developed country bonds where vaccine roll out has ony reached UK levels recently.  

Another related effect is that the February Covid data led to a significant rise in the value of the £ which would have decreased the £ value of foreign government bonds.

You are right about foreign bond funds, and they actually only have recovered a small part of the lost ground.
However what is still surprising is that there has been a lot of negative comment about corporate/investment bonds and any bonds dated more than a few years, but these seem to have generally recovered as well. 

The negative comment about long dated bond funds is not about their short term behaviour but rather what will happen when interest rates rise in the medium/long term.  Currently a 4.6% 2060 maturity gilt is trading at about £200.  Should interest rates rise to 4.6% such a bond would halve in value.

bostonerimus

Linton said:

bostonerimus said:

Buying individual bonds and create a bond ladder isn't easy for lots of people. That's why in the US there are "target maturity" bond funds that hold bonds that mature on a single date. They hold to maturity and you just get the principal and interest back. These take out the risk and bother of directly holding bonds for the consumer.

https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders

They sound extremely useful and a much better solution to the bond problem than a simple tracker..  Unfortunately I have not found any UK equivalent.

Yes, quite a few companies have them now and I think they are popular with retirees. I don't own any such funds myself, but the bonds I have are in accumulating multi-asset balanced funds with average maturities of 10 years that I'm not planning to sell.

jamesd

Albermarle said:

 I notice amongst all this talk about falling bond yields , that most bond funds have fully or partly recovered from the drops earlier in the year . The ones I checked seem to be in fact marginally above where they were this time last year .
I confess to having no idea why though.

It's been about rising yield and hence falling capital values, which has a substantial effect on bond fund values, the effect being greater the longer the maturity of the bonds held. One thing that bond funds normally disclose is the current average maturity of the bonds held.

If you hold actual bonds and are able to hold them to maturity this doesn't matter because then you get the interest rate you signed up for and your capital back, The single date bond funds that bostonerimus mentioned also have this property.

Personally, I've dodged the issue by using P2P lending and cash, most in a mortgage offset account, as bond substitutes.

Thrugelmir

jamesd said:

Albermarle said:

 I notice amongst all this talk about falling bond yields , that most bond funds have fully or partly recovered from the drops earlier in the year . The ones I checked seem to be in fact marginally above where they were this time last year .
I confess to having no idea why though.

If you hold actual bonds and are able to hold them to maturity this doesn't matter because then you get the interest rate you signed up for and your capital back, 

You don't get your capital returned per se. To cite @Linton above. If you pay £200 for a £100 of nominal stock of 4% Treasury 2060. Then you'll make a capital loss of £100. As only £100 will be returned to you upon redemption. The 2% running yield maybe attractive for income purposes but is only part of the story. 

UK 50 year bond yields are currently 0.81%.  Until the tide turns and interest rates start to rise and the threat of persistent inflation subsides . The outlook for those currently purchasing UK Gilts is best described as poor.  Resulting in equities having do even more of the heavy lifting to provide above inflation levels of return.