A good time to buy bonds?

ChilliBob

In another thread on savings and tax I think Ned S mentioned the idea of holding guilts directly for the tax advantages. 

I'm a newbie when it comes to bonds (I hold practically none, just some 'incidental' ones via equity focused multi asset funds)...

But this is an interesting concept. Somewhere else in the thread someone compared a 2 year bond to a 2 year fix on a conventional savings account - the two were very similar.. Except for selling the guilt attracted no cgt even if unwrapped. Tax (I believe) would need to be paid on the intetest/coupon from the bond.

As I say, I'm a newbie on this front but it's something that I think I'll explore more

wmb194

ChilliBob said:

In another thread on savings and tax I think Ned S mentioned the idea of holding guilts directly for the tax advantages. 

I'm a newbie when it comes to bonds (I hold practically none, just some 'incidental' ones via equity focused multi asset funds)...

But this is an interesting concept. Somewhere else in the thread someone compared a 2 year bond to a 2 year fix on a conventional savings account - the two were very similar.. Except for selling the guilt attracted no cgt even if unwrapped. Tax (I believe) would need to be paid on the intetest/coupon from the bond.

As I say, I'm a newbie on this front but it's something that I think I'll explore more

*gilts. Yes, they don't attract CGT but the flip side is that if you sell them at a capital loss this cannot be offset against other capital gains. In the context of the current two year gilts, for this to work out as a tax free capital gain if held to maturity you need to buy them below par i.e. <£100/100p.

Audaxer

I'm not now sure it is a good time to buy bonds, especially UK gilts, if the BoE are going to withdraw their current support this Friday 14 Oct., and if we still have to wait till 31 Oct. for the Chancellor's statement.  

Linton

Shocking_Blue said:

Linton said:

Shocking_Blue said:

Dear all,
I'm just looking at Capital Gearing Trust, which I hold, and a large % of its UK bonds seem to have a maturation date of 22/3/24, if I'm reading this correctly. Based on what's been said above, would these (and the fund as a whole) be less affected by the current interest rate/bond concerns than longer dated bonds?
Thanks

Yes, that is an example of active management achieving the objective of the fund in a way that would not be possible with an index fund.  Also you should find that CGT is highly invested in US bonds rather than gilts which as well as performing better are also benefitting from the fall in the £.

Thanks, Linton.
So you'd expect some re-jigging of the CGT holdings etc this week (in response to BoE comments on bonds)?

I have no idea what CGT will do - that is why I invest in them rather than try to achieve WP myself 😉.

Unfortunately the latest full list of CGTs investments gives the position as of  this time last year with a summary as of June this year.  The full list was the basis of my comments. From a quick scan of the two there seems to be large differences with a greater UK bond investment and less in US Index Linked.  We probably wont find out what they are up to for a little time yet.

However I doubt that they will change their strategy on a week to week basis depending on what the BoE says.

masonic

Audaxer said:

I'm not now sure it is a good time to buy bonds, especially UK gilts, if the BoE are going to withdraw their current support this Friday 14 Oct., and if we still have to wait till 31 Oct. for the Chancellor's statement.  

No problem for bonds held to maturity, but I'd agree on not jumping into a (UK) bond fund while the BoE's policy is uncertain (they've confirmed that the support will expire as planned, but they've left the door open to resuming if further action is necessary).

ChilliBob

wmb194 said:

ChilliBob said:

In another thread on savings and tax I think Ned S mentioned the idea of holding guilts directly for the tax advantages. 

I'm a newbie when it comes to bonds (I hold practically none, just some 'incidental' ones via equity focused multi asset funds)...

But this is an interesting concept. Somewhere else in the thread someone compared a 2 year bond to a 2 year fix on a conventional savings account - the two were very similar.. Except for selling the guilt attracted no cgt even if unwrapped. Tax (I believe) would need to be paid on the intetest/coupon from the bond.

As I say, I'm a newbie on this front but it's something that I think I'll explore more

*gilts. Yes, they don't attract CGT but the flip side is that if you sell them at a capital loss this cannot be offset against other capital gains. In the context of the current two year gilts, for this to work out as a tax free capital gain if held to maturity you need to buy them below par i.e. <£100/100p.

Bloody auto correct

Hmm, still more to look into. 

I think this is why in my 18 months of so as an investor I've not really got into bonds, every time I learn stuff sbout them I tend to come away with a bunch more questions, then I get distracted by something else and quietly put the questions to the side in my head for another day! 

Reaper

Not sure why people are thinking of bonds. At a time of rising interest rates & inflation the price of the bonds will be falling. I can't think of a worse time to invest.

The ideal time to buy is when interest rates peak and their yield is at their highest, but of course trying to time the market is a mugs game.

masonic

Reaper said:

Not sure why people are thinking of bonds. At a time of rising interest rates & inflation the price of the bonds will be falling. I can't think of a worse time to invest.

The ideal time to buy is when interest rates peak and their yield is at their highest, but of course trying to time the market is a mugs game.

A worse time to invest would be just before a time of rising interest rates and inflation

As with all markets, expectations will be priced in, so it would be expected that bond prices will reach a bottom ahead of interest rates reaching their peak. This feels quite close to the bottom to me, so dripping in over the next 6 months or so is probably going to deliver a fairly good market timing outcome. It won't look too clever, however, if we're into the middle of next year discussing the base rate getting into double digits.

Apodemus

masonic said:

Reaper said:

Not sure why people are thinking of bonds. At a time of rising interest rates & inflation the price of the bonds will be falling. I can't think of a worse time to invest.

The ideal time to buy is when interest rates peak and their yield is at their highest, but of course trying to time the market is a mugs game.

A worse time to invest would be just before a time of rising interest rates and inflation

As with all markets, expectations will be priced in, so it would be expected that bond prices will reach a bottom ahead of interest rates reaching their peak. This feels quite close to the bottom to me, so dripping in over the next 6 months or so is probably going to deliver a fairly good market timing outcome. It won't look too clever, however, if we're into the middle of next year discussing the base rate getting into double digits.

Well my foray into Gilts two years ago is certainly not looking clever!  Dropped below 50% of purchase price today!  Now languishing amongst my worst performers, down alongside some ill-chosen AIM stocks!  So from where I sit, I'm certainly hoping this is the bottom...and I'm starting to wonder about buying some more!  

nb2508

Am I right in thinking that an etf like £GLTL with a yield of 3.9%, will continue paying dividend into my ISA until maturity? If the yield goes down to say 3%, I am quids in?