Is now a good time to buy more Bonds?

grumpsthegit

Thanks for these comments, I am slowly getting a better understanding now. In hindsight, (which is of course wonderful) now i understand a little more how bond funds work, I think I should have perhaps bought individual bonds with the view to holding till maturity ergo no risk of loss. So that might be my next move assuming I can do that within my SIPP/ISA with Hargreaves Lansdown (will check this out)

Thanks all

michaels

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.

Not sure I agree with the other replies - they make sense if you buy bonds and hold to maturity but bond funds are effectively just another asset class to equities with different characteristics.  Historically they have been a useful hedge against equity volatility because:
(a) whilst on average they have yielded less than equities they have also been less volatile
(b) returns have tended to be inversely correlated with equity returns

The reason there is little discussion of changing equity/bond weightings is that this would be an example of trying to time the market - basically betting that your guess on where prices are going next is better than the market consensus ()which is what is priced in).  Unless you have inside information then this is effectively gambling and historically those who gamble in this way on average end up worse off than those who maintain a fixed strategy.

Linton

michaels said:

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.

Not sure I agree with the other replies - they make sense if you buy bonds and hold to maturity but bond funds are effectively just another asset class to equities with different characteristics.  Historically they have been a useful hedge against equity volatility because:
(a) whilst on average they have yielded less than equities they have also been less volatile
(b) returns have tended to be inversely correlated with equity returns

The reason there is little discussion of changing equity/bond weightings is that this would be an example of trying to time the market - basically betting that your guess on where prices are going next is better than the market consensus ()which is what is priced in).  Unless you have inside information then this is effectively gambling and historically those who gamble in this way on average end up worse off than those who maintain a fixed strategy.

Yes but the danger is that people may believe that bond funds have the same relationship to individual bonds that equity funds have with their underlying shares.  ie an easy way to get diversification by holding a variety of shares. 

Because of the fundamental importance of the fixed maturity date individual bonds behave very differently to bond funds and so could reasonably be considered a different type of asset.  Do not expect one to give you all the benefits of the other and make your choice of which to buy on your reasons for holding bonds at all..

leosayer

grumpsthegit said:

Thanks for these comments, I am slowly getting a better understanding now. In hindsight, (which is of course wonderful) now i understand a little more how bond funds work, I think I should have perhaps bought individual bonds with the view to holding till maturity ergo no risk of loss. So that might be my next move assuming I can do that within my SIPP/ISA with Hargreaves Lansdown (will check this out)

Thanks all

There is plenty of scope for making massive real-terms losses on individual bonds held to maturity if inflation goes higher. 

Bond funds can help mitigate that to some extent because they will be buying bonds at the prevailing yield through the period. In theory, higher inflation would lead to higher yields and therefore the fund can buy new bonds at lower prices.

They key thing is to make sure that the bond fund duration is not out of line with your own plans for spending it.

JohnWinder

There is plenty of scope for making massive real-terms losses on individual bonds held to maturity if inflation goes higher. 

Not if they’re linkers and the yield was positive at purchase.
If you want a feel for how these funds behave use portfoliovisualizer to see what happened to different bond funds, long and short duration, nominal and inflation protected, during unexpected and ‘normal’ inflation periods.

Albermarle

Linton said:

michaels said:

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.

Not sure I agree with the other replies - they make sense if you buy bonds and hold to maturity but bond funds are effectively just another asset class to equities with different characteristics.  Historically they have been a useful hedge against equity volatility because:
(a) whilst on average they have yielded less than equities they have also been less volatile
(b) returns have tended to be inversely correlated with equity returns

The reason there is little discussion of changing equity/bond weightings is that this would be an example of trying to time the market - basically betting that your guess on where prices are going next is better than the market consensus ()which is what is priced in).  Unless you have inside information then this is effectively gambling and historically those who gamble in this way on average end up worse off than those who maintain a fixed strategy.

Yes but the danger is that people may believe that bond funds have the same relationship to individual bonds that equity funds have with their underlying shares.  ie an easy way to get diversification by holding a variety of shares. 

Because of the fundamental importance of the fixed maturity date individual bonds behave very differently to bond funds and so could reasonably be considered a different type of asset.  Do not expect one to give you all the benefits of the other and make your choice of which to buy on your reasons for holding bonds at all..

Can you not though buy bond funds that concentrate on short, medium and long term maturity dates, rather than a complete mix of all of them ?

Hoenir

leosayer said:

grumpsthegit said:

Thanks for these comments, I am slowly getting a better understanding now. In hindsight, (which is of course wonderful) now i understand a little more how bond funds work, I think I should have perhaps bought individual bonds with the view to holding till maturity ergo no risk of loss. So that might be my next move assuming I can do that within my SIPP/ISA with Hargreaves Lansdown (will check this out)

Thanks all

There is plenty of scope for making massive real-terms losses on individual bonds held to maturity if inflation goes higher. 

There's scope for permanent loss of capital when investing in equities. Benign market conditions over an extended period have resulted in a generation of investors no having experienced a very different investing world. The real art of investing is to make an overall positive gain in portfolio value every year. 

Altior

I'm very keen on them personally, bond funds predominately government. Two reasons, they will be rotating into assets that pay a better rate to maturity, and my personal rule is that I generally like to bet against the crowd. On what I would call my active plays. I was buying rdsb and bp when oil briefly went negative for example. It's not just bonds I'm keen on, but ITs, some of which are effectively gilt fund proxies. The yields are appealing and I'm hoping for cap gain, though I intend to hold for the income. And yes in my active plays I am trying to time things, and I won't always be correct. I'm reasonably confident that we are at peak base rates, and the Fed will chip away at some point, likely before the election. 

A point to note also is that not all respected people are correct. One such person claimed that the time to buy linker bond funds was if you felt inflation was underestimated. A couple of years ago I did, it was, inflation spiked and my linker funds fell through the floor! That hurt. Life is one long lesson and now I'm just relying on my own instincts. 

Linton

Albermarle said:

Linton said:

michaels said:

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.

Not sure I agree with the other replies - they make sense if you buy bonds and hold to maturity but bond funds are effectively just another asset class to equities with different characteristics.  Historically they have been a useful hedge against equity volatility because:
(a) whilst on average they have yielded less than equities they have also been less volatile
(b) returns have tended to be inversely correlated with equity returns

The reason there is little discussion of changing equity/bond weightings is that this would be an example of trying to time the market - basically betting that your guess on where prices are going next is better than the market consensus ()which is what is priced in).  Unless you have inside information then this is effectively gambling and historically those who gamble in this way on average end up worse off than those who maintain a fixed strategy.

Yes but the danger is that people may believe that bond funds have the same relationship to individual bonds that equity funds have with their underlying shares.  ie an easy way to get diversification by holding a variety of shares. 

Because of the fundamental importance of the fixed maturity date individual bonds behave very differently to bond funds and so could reasonably be considered a different type of asset.  Do not expect one to give you all the benefits of the other and make your choice of which to buy on your reasons for holding bonds at all..

Can you not though buy bond funds that concentrate on short, medium and long term maturity dates, rather than a complete mix of all of them ?

Yes you can buy restricted duration gilt funds though the choice is pretty limited and is mainly short dated.  I cant find any purely medium or long dated gilt ETFs though I cannot think of an objective that wuld require them rather than a general gilt fund.  Clearly a purely long dated gilt fund could be very volatile since minor changes in interest rates would be cumulated over decades.

Beddie

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.

Two good funds that you should be happy to continue investing in.