Bonds – what are you doing?

aroominyork

This is not a new theme but I think worth more discussion.

For a while I have divided my allocation between short duration (Royal London Short Duration Credit) which has performed well over several years with low volatility, and Vanguard’s global bond index (about 65% govt, 35% corporate). I have watched the latter slide during recent months and don’t expect an immediate bounce so it is time to bail. Since I expect inflation to continue to be high for a while I am not considering cash.

Part of the proceeds will go into CG Absolute Return (the open ended version of Capital Gearing Trust) whose bonds are mostly index linked and long duration. For the balance I am thinking of Royal London Short Duration Global Index Linked Bond. Current inflation is more globally than nationally driven, and this fund is less volatile than a purely UK linker fund. Its short duration is more of a tactical play than I would usually take with safeish bonds but it seems a decent option.

How are other people approaching this?

Thrugelmir

Watching and waiting still. Maybe 12-18 months before the fog of uncertainty clears. Bonds broadly speaking aren't attractive at current yields. The impact of rising interest rates and a reversal of the Central Banks Goldilocks fiscal policies combining is going to hit hard. 

GeoffTF

That the Vanguard Global Bond fund has become cheaper, is a not good reason to sell it. It could be as cheap as it will get. Will interest rates rise more or less than the market expects? Do you know more than the market?

If you want long duration index linked, you could buy the Vanguard Index Linked Gilt fund, which is a lot cheaper than Capital Gearing (which also holds equities). There are lots of short dated bond funds to choose from, e.g. IGLS. The interest paid by that fund is better than it was, but it is still not exciting. Nonetheless, it should be safe.

I can only tax shelter about a third of my portfolio. I have chosen to shelter mostly equities, but I do have about 1.5% of my portfolio invested VAGP within my ISA. That has not done well recently, but that is a tiny hit to my overall portfolio. My cash/bond allocation is mostly 5 year savings accounts, but I also hold 0.125% Index Linked 2029 and some index linked savings certificates.

Archie_Duke

I put a (for me) substantial amount in the Coventry Loyalty Fixed Bond. Short term maturing 30/04/23. Now wish I hadn’t as I’d get a (marginally) better rate with the Chase account I’ve just opened!

coastline

Set the chart to 50 years for a decent picture. It takes years for rates to move and there's always short term cycles in either direction. No expert at all but if you look from 2010 onwards the US 10yr is around the same level today at 2.5%. Take out the pandemic lows and you can kind of see a base forming over the last decade. Considering most bonds will mature and be replaced this should put some floor to the falling prices.

 United States Government Bond 10Y - 2022 Data - 1912-2021 Historical - 2023 Forecast (tradingeconomics.com)

Markets suggest a bit higher but not much so let's see next year ? Inflation will they fight it ? Can they really fight if it goes to the moon ? Push rates too high and the economy will slump. So there'll be a time to buy at some point .That's if you're not already in. Maybe 3.0% ? 

FO9dImLXwBMaX8D (900×517) (twimg.com)

This link is pretty decent and maybe you can read without a log in. Some good stuff on twitter as most investment banks have their own feeds.

Jurrien Timmer (@TimmerFidelity) / Twitter

'I wonder if the market is looking through an even hawkish Fed,' says Jurrien Timmer (cnbc.com)

Prism

The only one of my bond funds that has provided any sort of return recently is Lyxor Core Global Inflation-Linked 1-10Y Bond ETF - GISG. My other bond fund, a short term one, is down.

aroominyork

Thrugelmir said:

Watching and waiting still. Maybe 12-18 months before the fog of uncertainty clears. Bonds broadly speaking aren't attractive at current yields. The impact of rising interest rates and a reversal of the Central Banks Goldilocks fiscal policies combining is going to hit hard. 

In equities am moving some funds from active to index funds because of the fog of uncertainty, but for bonds low yields + rising interest rates + QC reversal suggest action rather than watching and waiting.

GeoffTF said:

If you want long duration index linked, you could buy the Vanguard Index Linked Gilt fund, which is a lot cheaper than Capital Gearing (which also holds equities).

I bought CGT for the wealth preservation element so I am happy with the equities and long-dated linkers. The plan is to add short duration inflation linked as a low volatility play on high inflation in the coming few years.

Thrugelmir

coastline said:

Set the chart to 50 years for a decent picture. It takes years for rates to move and there's always short term cycles in either direction. 

No need for charts. We are already in the midst of a storm with Central Banks behind the curve.  The US in particular has unleashed MMT in a form never experienced before and is now suffering the consequences. 

coastline

Thrugelmir said:

coastline said:

Set the chart to 50 years for a decent picture. It takes years for rates to move and there's always short term cycles in either direction. 

No need for charts. We are already in the midst of a storm with Central Banks behind the curve.  The US in particular has unleashed MMT in a form never experienced before and is now suffering the consequences. 

What about the rest of my post .? I've highlighted the inflation situation which those at the top said was transitory. It appears a bit more than that as we all know with our daily lives. The central banks are still hanging onto the idea of inflation slowing down. Nobody knows for sure but they might be correct ? The markets think they can't move rates much higher and I'd rather believe them than anybody. QE well what's to stop them turning it on and off like a tap ? There's always something to worry or think about.

aroominyork

Prism said:

The only one of my bond funds that has provided any sort of return recently is Lyxor Core Global Inflation-Linked 1-10Y Bond ETF - GISG. My other bond fund, a short term one, is down.

Similar performance to the RL fund I am looking at (GB00BD050F05), perhaps not surprising since RL has effective duration of 4.97 years.

Thrugelmir

coastline said:

Thrugelmir said:

coastline said:

Set the chart to 50 years for a decent picture. It takes years for rates to move and there's always short term cycles in either direction. 

No need for charts. We are already in the midst of a storm with Central Banks behind the curve.  The US in particular has unleashed MMT in a form never experienced before and is now suffering the consequences. 

What about the rest of my post .? I've highlighted the inflation situation which those at the top said was transitory. It appears a bit more than that as we all know with our daily lives. The central banks are still hanging onto the idea of inflation slowing down. Nobody knows for sure but they might be correct ? The markets think they can't move rates much higher and I'd rather believe them than anybody. QE well what's to stop them turning it on and off like a tap ? There's always something to worry or think about.

History is likely to repeat itself. A previous Fed chairman Paul Volcker faced the same challenge when taking office in 1979. His medicine was simple. Attack money supply growth directly by letting interest rates go wherever they may. The markets worst nightmare. Scary as it was. Paul Volcker accomplished his goal. Confidence has to be restored in the US $. There's much conversation that the US $ faces existential danger. All empires eventually come to an end. 

The one thing that I took away after researching the GFC at great length after the event. Was that what the market says in public and what it actually does privately can be very different things. They don't make money by publicising their investment strategies in advance.