Is now a good time to buy more Bonds?


Thanks in advance.
Comments
-
The purpose of having bonds in a portfolio is to act as a diversifier to equities and to reduce volatility. They didn't really do that job last year though, but that was exceptional.
It's hard to give an meaningful help without knowing your current holdings, your retirement income requirements and what type of bonds you are referring to.
For what its worth, I held only equities (via index funds) until end of last year when I started investing my ongoing contributions into the Vanguard short-term bond index fund as I was within 5 years of retirement. Before that I didn't consider bonds at all because the yields were so low.0 -
My question is more of a generic one (I thought anyway :-)) but for context 17.5 % of my portfolio is Bonds (64% Sterling, 26% Dollar plus some Euro). Mainly in Royal London Sterling Extra Yield Bond Class Y and Artemis High Income Class MI.0
-
Bonds are back to "normal" whatever that means. If you look at one year returns, most bond funds have done pretty well. Therefore 12 months ago was a better time, hindsight eh? Unless base rate shoots up, unlikely, then bonds will continue their steady returns.
Personally I'd pay into the pension keeping the proportions of bonds/equities the same, no need to favour bonds unless you want to lower the overall risk of the portfolio. If you do want to reduce risk, then bonds are probably the better choice.
0 -
grumpsthegit said:My question is more of a generic one (I thought anyway :-)) but for context 17.5 % of my portfolio is Bonds (64% Sterling, 26% Dollar plus some Euro). Mainly in Royal London Sterling Extra Yield Bond Class Y and Artemis High Income Class MI.
In my view it makes more sense to buy them for income if that is what you want rather than as a diversifier in a broad portfolio.2 -
Bonds are now less expensive relative to equities so if you were to make an allocation decision now then you might choose a higher proportion of bonds.
Also your previous allocation decision proportions probably no longer hold if your bonds are down more than your equities so again you would need to rebalance even just to get back to the mix you purchased originally.I think....1 -
I asked a similar question a while ago, because if there was any objective data to suggest that bonds had been oversold then it might have been worth hanging on to them (given they were initially bought at the high point) in the hope of a bit of a bounce.
Unfortunately these discussions tend to gravitate back to 'bonds do what bonds do' and 'if you want want bonds do, then hold bonds' type comments rather than any meaningful analysis of whether there's any short term upside potential following last years bloodbath.It may be there's no easy answer to that, but I think it's a fair question to ask regardless.2 -
artyboy said:I asked a similar question a while ago, because if there was any objective data to suggest that bonds had been oversold then it might have been worth hanging on to them (given they were initially bought at the high point) in the hope of a bit of a bounce.
Unfortunately these discussions tend to gravitate back to 'bonds do what bonds do' and 'if you want want bonds do, then hold bonds' type comments rather than any meaningful analysis of whether there's any short term upside potential following last years bloodbath.It may be there's no easy answer to that, but I think it's a fair question to ask regardless.
Scroll down to the 'Bonds' part.
Basically Fidelity's investment analyst thinks it is a good time to invest in Government bonds, and maybe very high grade corporate bonds.1 -
but I think it's a fair question to ask regardless.
I don’t think fairness comes into it. It’s a tempting question, but pointless, and the reason you get the unsatisfactory answers of ‘bonds are bonds’ is because predicting whether their yields will rise, fall or stay largely unchanged in the future, even the short term future is an impossible guess to confidently get right.
Exhibit 1: https://www.marketwatch.com/story/yes-100-of-economists-were-dead-wrong-about-yields-2014-10-21
Exhibit 2: bond yields for next month or next year are set by the market. The market has decided that the yield on 6 month maturity government bonds is (say) 2%/year, and on 12 month maturity bonds (say) 2.2%/year. If you want to earn better than market returns on those bonds, you have to know that in 3 weeks time the 6 month yield will actually be 2.5% and the 12 month yield will be 2.8%, such that you hold off buying those bonds for 3 weeks. Similarly, if you know the yields will fall in 3 weeks, you buy the bonds now. But remember, the yields, and thus prices, are what they are because they have been determined by the combined wisdom of all players in the market. If the market thought yields would rise in 3 weeks the market would have already poured its money into those bonds pushing the price up and the yields downward, to a steady state level it’s at now.
Asking what we think bond prices will do in the coming months/years is to assume any of us know more than the market as a whole. Forget it.
0 -
grumpsthegit said:I like a lot of people have seen the value of my portfolio drop due to the falling bond prices. So although I am hoping to retire in the next couple of years, as I will probably go the Drawdown/UFPLS route I will be able to pick and chose where I take my money from in the first few years so can leave the bonds alone in the hope they bounce back in the next 5 years or so. So with that in mind is it actually worth buying more now? I still have some of the 60k annual pension contribution allowance left this year so just considering my options. Do bonds looks like good value at the moment?
Thanks in advance.And so we beat on, boats against the current, borne back ceaselessly into the past.2 -
artyboy said:I asked a similar question a while ago, because if there was any objective data to suggest that bonds had been oversold then it might have been worth hanging on to them (given they were initially bought at the high point) in the hope of a bit of a bounce.
Unfortunately these discussions tend to gravitate back to 'bonds do what bonds do' and 'if you want want bonds do, then hold bonds' type comments rather than any meaningful analysis of whether there's any short term upside potential following last years bloodbath.It may be there's no easy answer to that, but I think it's a fair question to ask regardless.
The difficulty with equity is that you have very little knowledge about the future. So equity pricing is based on guesswork and group-think. Waves of pessimism and optimism can have major effects on the market.
Let's restrict the discussion to safe fixed rate government bonds - say gilts. Gilts are fundamentally different to equity because you know all there is to know about a gilt. At a predetermined point in the future, maturity, you know with 100% certainty that the bond will be worth £100 and that in the meantime you will receive interest twice a year fixed in £ terms. If you buy a gilt and hold it to maturity there is no risk whatsoever.
Since this information is known to all traders we have very close to a perfect market. There is no over or under valuation. Unlike with equity there are no opportunities that the market has overlooked or bonds about which there is irrational optimism. There is no benefit in switching from one bond to another with the same maturity date.
So what is the problem? The problem is what happens if you want to sell the bond before maturity. The price will depend on the desirability of the bond which will depend on how the interest paid out by the bond compares with interest available elsewhere which. This will vary over time because of central bank decisions on short term interest rates and because of the state of the economy.
So for example if a few years ago you bought a bond which pays interest of £1 for £100 when banks were prepared to pay 5% interest you may at first think that your gilt would only be worth £20 so as to provide the same % interest.. However it will be worth more than that depending on the time to maturity when its value is fixed at £100. The correct price can be calculated mathematically from time to maturity, the interest paid out by the bond and current interest rates.
Finally we can explain why investors were badly hit when interest rates rose. Perhaps the core problem is that most investors dont buy individual gilts which they hold to maturity but instead buy gilt funds that contain individual gilts with a very wide range of maturities. So when the fund is sold most of the bonds will be far from maturity which means their price will be sensitive to the then current interest rates.
The immediate cause of the crash was that ever since the early 1980s interest rates have been falling. So as well as generating interestold gilts being sold prior to maturity had the benefit of a capital gain thanks to them being more desirable than new gilts paying lower interest. Clearly the continual fall in interest rates and increasing capital value of bonds was unsustainable. It ended spectacularly thanks to the disruption and inflation caused by Covid, the uncertainties of the Ukraine war and the wish by the central banks to get interest rates back to a more historically normal level. It was something that was expected to happen at some stage but the speed and severity of the rise in rates/fall in prices surprised many people.
So I think it is pretty safe to say that there wont be a bounceback in bond funds but rather a long term steady climb as the higher yields are re-invested. Of course one cannot ciompletely discount the possibility of a future economic event that would cause interest rates to fall back to previous levels but it would have to be something both major and global with effects far more significant than the value of your gilt funds.
10
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 348.4K Banking & Borrowing
- 252.1K Reduce Debt & Boost Income
- 452.4K Spending & Discounts
- 241K Work, Benefits & Business
- 617.3K Mortgages, Homes & Bills
- 175.7K Life & Family
- 254.2K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 15.1K Coronavirus Support Boards