Bond funds question

Linton

Ciprico said:

You can certainly buy Gilts on Interactive Investor, I have several maturing over the next few years (home made ladder).

I would like to buy Linkers but don't understand enough about them...

Gilts are relatively simple - below for HL, you pick the maturity, and price/coupon for your requirements... 

So you buy the second one for £99.30, and get £100 back in Sept 23, with the final coupon of £2.50, no selling charges.

So guaranteed a loss with inflation factored in - but better than cash is a SIPP...

It is also interesting for non tax protected savings  - ie 31/Jan/2025 Gilt (last one), the coupon is peanuts, but but over two years what you buy for 94p returns 100p (about 3%pa), but you don't pay capital gains on gilts...

The coupon for most bonds is peanuts at the moment because they were issued between 2008 and 2021.  There are some higher interest ones left over from pre 2008 and new higher interest ones will become more common.  I did notice that even after interest rates rose 0.125% coupon bonds were still being launched with, of course, very low prices.  My first thought was that the government was being clever by minimising the short term costs, but now suspect that it was simply because bond issues are announced some time in advance.

Pat38493

Linton said:

Pat38493 said:

Linton said:

Now all gilts are sold by auction even at launch. You can buy from the government, I think the Debt Management Office, if you are registered with them. But I have no idea what that might involve.

LOL - hoist by you rown petard! 

Not at all.  The "Now" in the sentance is correct - though the sentance would be better expressed as "Gilts are sold by auction at launch".  Many years ago they  weren't.  The point being that even the institutions have to to buy at a market price at launch rather than par. I notice that the BoE has also being selling some of its QE bonds by auction.

Sorry yes - I was confused by the next sentence saying that I could theoretically buy them from the government but I guess you meant in an auction.

Pat38493

So job descriptions:

- Equity funds manager's job is to guess how companies will perform in future.

- Bond fund manager's job is to guess future interest rates.

- My job is to pay for their mistakes, on the assumption they will make less mistakes than what I would do myself.

?

   Probably this is a gross oversimplification of course. 

Linton

Pat38493 said:

Linton said:

Pat38493 said:

Linton said:

Now all gilts are sold by auction even at launch. You can buy from the government, I think the Debt Management Office, if you are registered with them. But I have no idea what that might involve.

LOL - hoist by you rown petard! 

Not at all.  The "Now" in the sentance is correct - though the sentance would be better expressed as "Gilts are sold by auction at launch".  Many years ago they  weren't.  The point being that even the institutions have to to buy at a market price at launch rather than par. I notice that the BoE has also being selling some of its QE bonds by auction.

Sorry yes - I was confused by the next sentence saying that I could theoretically buy them from the government but I guess you meant in an auction.

Yes,  AIUI auctions are organised through the DMO.  Fancy bidding against L&G or Aviva?

coyrls

JohnWinder said:

You could be right. In which case now that linker yields are positive we should hear of people taking them up, or at least being offered them - watch this space. 

I have taken them up now that linker yields are positive but without advice.

Prism

Fixed term savings savings account are bonds and good for a short bond ladder. They can't be bought in a SIPP though.

coyrls

Prism said:

Fixed term savings savings account are bonds and good for a short bond ladder. They can't be bought in a SIPP though.

Yes, and usually better returns too.  I have used them in this way.  They don't offer inflation protection though and now that NS&I don't issue their inflation linked bonds, Index Linked Gilts are the only option I know of.

As a side issue, I have seen graphs that compare money market returns with bond fund returns to make the case for bond funds, however for a retail investor they should also compare retail interest rates, which are generally a lot higher than money market rates.

Pat38493

coyrls said:

Prism said:

Fixed term savings savings account are bonds and good for a short bond ladder. They can't be bought in a SIPP though.

Yes, and usually better returns too.  I have used them in this way.  They don't offer inflation protection though and now that NS&I don't issue their inflation linked bonds, Index Linked Gilts are the only option I know of.

As a side issue, I have seen graphs that compare money market returns with bond fund returns to make the case for bond funds, however for a retail investor they should also compare retail interest rates, which are generally a lot higher than money market rates.

OK but then don't I have to pay tax on the interest?

coyrls

Pat38493 said:

coyrls said:

Prism said:

Fixed term savings savings account are bonds and good for a short bond ladder. They can't be bought in a SIPP though.

Yes, and usually better returns too.  I have used them in this way.  They don't offer inflation protection though and now that NS&I don't issue their inflation linked bonds, Index Linked Gilts are the only option I know of.

As a side issue, I have seen graphs that compare money market returns with bond fund returns to make the case for bond funds, however for a retail investor they should also compare retail interest rates, which are generally a lot higher than money market rates.

OK but then don't I have to pay tax on the interest?

For Index Linked Gilts?  You have to pay tax on the bi-annual interest payments but the bonds are issued with very low interest, such as 0.125% (plus RPI) but profits on disposal (including redemption) are not taxed (as interest or capital gains).  What this means is that the final payment on redemption which is the issue price + RPI is not taxable.  Obviously if you hold the gilts in an ISA or a SIPP, even the interest payments are not taxed.

Prism

Pat38493 said:

coyrls said:

Prism said:

Fixed term savings savings account are bonds and good for a short bond ladder. They can't be bought in a SIPP though.

Yes, and usually better returns too.  I have used them in this way.  They don't offer inflation protection though and now that NS&I don't issue their inflation linked bonds, Index Linked Gilts are the only option I know of.

As a side issue, I have seen graphs that compare money market returns with bond fund returns to make the case for bond funds, however for a retail investor they should also compare retail interest rates, which are generally a lot higher than money market rates.

OK but then don't I have to pay tax on the interest?

On fixed term savings accounts - yes you do. No reason to rule them out though, even though the returns are lower because of the tax.