Bonds - Your views at the moment?

ChilliBob

Guys, 

I'm curious of your views on bonds right now... 

I've read a few things on and off over the last few weeks/months, and there seems to be quite a difference of opinion.

Clearly bonds have had a pretty rough time recently, to put it mildly (and I'm aware 'bonds' is rather vague - from gov bonds to junk bonds!).

Quite a bit of manager commentary at the moment seems to suggest it's a great entry point, 'most excited about the asset class for over a decade' from JPM for example.

The retail investor vibes seem to be a little less enthusiastic reading some random comments.

Just curious of people's thoughts, obviously everyone's circumstances and risk profiles are different so it's not like one size fits all! 

masonic

Junk bonds don't look very attractive, the credit spreads don't seem to have taken into account the fact we're heading into a global recession. Government bonds now have a reasonable YTM, but not as good as could be had if scooped up during the chaos of last year - compare yields to the interest payable on fixed term savings accounts. Risks are that interest rates settle higher than expected and/or inflation is more sticky than expected. Not the return free risk they once were, but nothing to get excited about IMHO.

ChilliBob

From a personal pov I think I was looking more towards the gov, or slightly riskier level as opposed to junk.

Also considering the bonds vs savings accounts and further. The tax implications are interesting if you think you'll have to pay tax on your savings... But then dividend taxation comes into it too for the interest on the coupons. 

With a portfolio which is basically cash and equity there's certainly space for other stuff! 

masonic

ChilliBob said:

From a personal pov I think I was looking more towards the gov, or slightly riskier level as opposed to junk.

Also considering the bonds vs savings accounts and further. The tax implications are interesting if you think you'll have to pay tax on your savings... But then dividend taxation comes into it too for the interest on the coupons. 

With a portfolio which is basically cash and equity there's certainly space for other stuff!

It shouldn't, bonds pay interest not dividends. Unless you get your bond exposure through a multi-asset fund holding >40% equities.

wmb194

In recent weeks the talking heads on Bloomberg and CNBC say they like the look of government and investment grade corporate bonds but they don't like sub-investment grade i.e. junk. As Masonic writes, they don't think the yields on these reflect the risks of recession given they're more likely to default and they tend to trade more like equities. If the equity markets take another leg lower so will these, more so than investment grade.

ChilliBob

I guess your post reinforces my view that the (well respected in this case!) forumites, retail investors seem to be lukewarm at best, but fund managers seem quite excited. Perhaps because they're pedalling the funds eith 1% OCF! 

ChilliBob

masonic said:

ChilliBob said:

From a personal pov I think I was looking more towards the gov, or slightly riskier level as opposed to junk.

Also considering the bonds vs savings accounts and further. The tax implications are interesting if you think you'll have to pay tax on your savings... But then dividend taxation comes into it too for the interest on the coupons. 

With a portfolio which is basically cash and equity there's certainly space for other stuff!

It shouldn't, bonds pay interest not dividends. Unless you get your bond exposure through a multi-asset fund holding >40% equities.

Yeah, my bad, I more meant if you are in this position, where tax on interest could be a concern, then bonds below face value, with low coupon, could be a good plan. But yes, the best of these are probably long gone. 

dunstonh

Quite a bit of manager commentary at the moment seems to suggest it's a great entry point, 'most excited about the asset class for over a decade' from JPM for example.

If you are talking gilts, then income units are pretty much at their lowest point in over 30 years.  

If you are talking corporate bonds, then they havent had the issues that gilts have but they tend to suffer in recessions and rising interest rates.  High yield bonds even more so.

rhaps because they're pedalling the funds eith 1% OCF! 

Hardly any managed funds charge that much nowadays.  Most are in the 0.3-0.7% range nowadays.   only Niche/specialist funds go to 1% nowadays.

masonic

ChilliBob said:

masonic said:

ChilliBob said:

From a personal pov I think I was looking more towards the gov, or slightly riskier level as opposed to junk.

Also considering the bonds vs savings accounts and further. The tax implications are interesting if you think you'll have to pay tax on your savings... But then dividend taxation comes into it too for the interest on the coupons. 

With a portfolio which is basically cash and equity there's certainly space for other stuff!

It shouldn't, bonds pay interest not dividends. Unless you get your bond exposure through a multi-asset fund holding >40% equities.

Yeah, my bad, I more meant if you are in this position, where tax on interest could be a concern, then bonds below face value, with low coupon, could be a good plan. But yes, the best of these are probably long gone. 

There are still individual gilts paying a very low coupon, where the majority of the return will be through a tax exempt capital gain when held to maturity, so for those paying tax on their interest, especially higher rate tax, they still could be a very attractive option.

ChilliBob

dunstonh said:

Quite a bit of manager commentary at the moment seems to suggest it's a great entry point, 'most excited about the asset class for over a decade' from JPM for example.

If you are talking gilts, then income units are pretty much at their lowest point in over 30 years.  

If you are talking corporate bonds, then they havent had the issues that gilts have but they tend to suffer in recessions and rising interest rates.  High yield bonds even more so.

rhaps because they're pedalling the funds eith 1% OCF! 

Hardly any managed funds charge that much nowadays.  Most are in the 0.3-0.7% range nowadays.   only Niche/specialist funds go to 1% nowadays.

Thanks, all interesting points. Yeah that was a bit of an over statement, I do find a fair amount of active funds sit in the 0.6-1%, range though, some fairly popular ones even more, Ruffer I believe is toppy, and HVPE. But I gusss both are specialist as you say.

Yeah, I think a lot of commentary tends to just use the word 'bonds' without going into more detail - as you have said the different types of bonds behave pretty differently depending on the environment. Likewise say value/growth/small cap etc equities.

ChilliBob

masonic said:

ChilliBob said:

masonic said:

ChilliBob said:

From a personal pov I think I was looking more towards the gov, or slightly riskier level as opposed to junk.

Also considering the bonds vs savings accounts and further. The tax implications are interesting if you think you'll have to pay tax on your savings... But then dividend taxation comes into it too for the interest on the coupons. 

With a portfolio which is basically cash and equity there's certainly space for other stuff!

It shouldn't, bonds pay interest not dividends. Unless you get your bond exposure through a multi-asset fund holding >40% equities.

Yeah, my bad, I more meant if you are in this position, where tax on interest could be a concern, then bonds below face value, with low coupon, could be a good plan. But yes, the best of these are probably long gone. 

There are still individual gilts paying a very low coupon, where the majority of the return will be through a tax exempt capital gain when held to maturity, so for those paying tax on their interest, especially higher rate tax, they still could be a very attractive option.

Yeah, put better than my attempt. I think that's certainly worth a look for me. But then it's bonds as a cash savings alternative, and then equities. So, ignoring corporate and junk, it seems adding guilts, for example, doesn't really give me much more diversification than cash, it's more of a tax optimisation strategy. 

Which I suppose deviates from the thread title a bit but takes you into equities + what discussion again. Real Estate, gold, commodities, none really appeal much at the moment really.