Global or UK bond index - which and why?

masonic

zagfles said:

masonic said:

zagfles said:

So Brexit had no or minimal effect (prices still sky high well into 2021) yet stuff happening since has? Really?

No, the 50 year gilt yield nearly doubled in the wake of the Brexit vote, along with currency and stock market turbulence. It was more pronounced than the 20% reduction in gilt yield you brought up or the 40% Trussonomics spike.

Which one in particular? I've just looked at a couple of long dated gilts both normal and IL and there is no spike in yields anywhere near that sort of magnitude around the Brexit vote time ie 23/6/2016. Unless this was in a very small window eg an inter-day panic and immediate recovery which doesn't even show up on a 10 year graph. 

In fact in the summer after the Brexit vote the yields went down and never seemed to reach the levels in May 2016 until 2022!

I was basing on Barrons yield curve data, going from a little above 1.2% to just over 1.9%, then moving in the 1.4-1.9% range until mid-2019, then almost unbelievable lows of under 0.5% in April 2020. The trouble with going back almost a decade is that you lose resolution. ISTR there was much shock and intra-day movements in various markets were quite something, but the charts no longer do them justice. Anyway, I think this thread has been derailed enough without relitigating Brexit.

masonic

aroominyork said:

Bostonerimus1 said:

Global bond funds are more diverse than UK Gilt funds so you might thing that's an advantage as you will be insulated from a UK Government tanking the Gilt markets.

...which takes me back to my original question and dunstonh's reply https://forums.moneysavingexpert.com/discussion/comment/80467073#Comment_8046707.

I'm minded to split between a hedged corporate bond fund, a hedged global aggregate index fund and a gilt index fund (if I can find a reasonable time to sell Capital Gearing Trust which probably no longer meets my needs).

Have you surveyed the available multi-asset funds to see if there is a lower risk option with a similar asset allocation to that which you are considering? This might make things a bit simpler. ~20% in equities actually reduces volatility and increases risk adjusted return if considering the standalone bucket within your portfolio.

Hoenir

masonic said:

zagfles said:

masonic said:

zagfles said:

So Brexit had no or minimal effect (prices still sky high well into 2021) yet stuff happening since has? Really?

No, the 50 year gilt yield nearly doubled in the wake of the Brexit vote, along with currency and stock market turbulence. It was more pronounced than the 20% reduction in gilt yield you brought up or the 40% Trussonomics spike.

Which one in particular? I've just looked at a couple of long dated gilts both normal and IL and there is no spike in yields anywhere near that sort of magnitude around the Brexit vote time ie 23/6/2016. Unless this was in a very small window eg an inter-day panic and immediate recovery which doesn't even show up on a 10 year graph. 

In fact in the summer after the Brexit vote the yields went down and never seemed to reach the levels in May 2016 until 2022!

I was basing on Barrons yield curve data, going from a little above 1.2% to just over 1.9%, then moving in the 1.4-1.9% range until mid-2019, then almost unbelievable lows of under 0.5% in April 2020. 

The data appears to be tracking BOE base rate. Which is what you'd expect. 

03 Aug 23	5.25
22 Jun 23	5.00
11 May 23	4.50
23 Mar 23	4.25
02 Feb 23	4.00
15 Dec 22	3.50
03 Nov 22	3.00
22 Sep 22	2.25
04 Aug 22	1.75
16 Jun 22	1.25
05 May 22	1.00
17 Mar 22	0.75
03 Feb 22	0.50
16 Dec 21	0.25
19 Mar 20	0.10
11 Mar 20	0.25
02 Aug 18	0.75
02 Nov 17	0.50
04 Aug 16	0.25
05 Mar 09	0.50

masonic

Hoenir said:

masonic said:

zagfles said:

masonic said:

zagfles said:

So Brexit had no or minimal effect (prices still sky high well into 2021) yet stuff happening since has? Really?

No, the 50 year gilt yield nearly doubled in the wake of the Brexit vote, along with currency and stock market turbulence. It was more pronounced than the 20% reduction in gilt yield you brought up or the 40% Trussonomics spike.

Which one in particular? I've just looked at a couple of long dated gilts both normal and IL and there is no spike in yields anywhere near that sort of magnitude around the Brexit vote time ie 23/6/2016. Unless this was in a very small window eg an inter-day panic and immediate recovery which doesn't even show up on a 10 year graph. 

In fact in the summer after the Brexit vote the yields went down and never seemed to reach the levels in May 2016 until 2022!

I was basing on Barrons yield curve data, going from a little above 1.2% to just over 1.9%, then moving in the 1.4-1.9% range until mid-2019, then almost unbelievable lows of under 0.5% in April 2020. 

The data appears to be tracking BOE base rate. Which is what you'd expect. 

Yes, there is no doubt there is a long term trend following base rate movements, but there are considerable short term swings between base rate changes. This digression started with zagfles observing that there has been a 20% gain in the 50 year gilt price, corresponding to a 1% drop in YTM, over the previous 2 weeks. There are plenty of examples of such volatility recently that cannot be explained by changes in the BOE base rate. But, yes, acknowledge that those base rate rises following the Brexit vote have muddied the waters on that particular example as yields would be expected to rise post-May 2016 on this alone. Of course, rates were dropped in March 2020 because of the pandemic.

aroominyork

masonic said:

aroominyork said:

Bostonerimus1 said:

Global bond funds are more diverse than UK Gilt funds so you might thing that's an advantage as you will be insulated from a UK Government tanking the Gilt markets.

...which takes me back to my original question and dunstonh's reply https://forums.moneysavingexpert.com/discussion/comment/80467073#Comment_8046707.

I'm minded to split between a hedged corporate bond fund, a hedged global aggregate index fund and a gilt index fund (if I can find a reasonable time to sell Capital Gearing Trust which probably no longer meets my needs).

Have you surveyed the available multi-asset funds to see if there is a lower risk option with a similar asset allocation to that which you are considering? This might make things a bit simpler. ~20% in equities actually reduces volatility and increases risk adjusted return if considering the standalone bucket within your portfolio.

No need that I can see. I am 70% equities/30% fixed interest so this is not a case of needing 20% equities on the efficient frontier. I can easily re-jig my equities when I bring in those currently held within CGT. I am happy with the corporate bond fund for a bit of fizz (Man GLG Sterling Corporate, though it's hard to imagine it carrying on serving me as well as it has been - and I note your point that increased credit spreads could affect riskier bonds), and the mix of cheap global aggregate and UK gilt funds seems sensible. It is clear to me that trying to time fixed interest markets is outside my skillset - I am no masonic!

masonic

aroominyork said:

It is clear to me that trying to time fixed interest markets is outside my skillset - I am no masonic!

That was quite a unique set of circumstances - with interest rates at all time lows and inflation starting to bite, it was not difficult to see what was going to happen. I won't be making any high conviction bets now that we are in a normal range for interest rates and bond yields. Corporates always take a bit of a beating if a recession comes along, but there is no way of predicting when the next one will come along. If you are holding long term for yield rather than rebalancing purposes, then price fluctuations should not be a concern.

Hoenir

masonic said:

Hoenir said:

masonic said:

zagfles said:

masonic said:

zagfles said:

So Brexit had no or minimal effect (prices still sky high well into 2021) yet stuff happening since has? Really?

No, the 50 year gilt yield nearly doubled in the wake of the Brexit vote, along with currency and stock market turbulence. It was more pronounced than the 20% reduction in gilt yield you brought up or the 40% Trussonomics spike.

Which one in particular? I've just looked at a couple of long dated gilts both normal and IL and there is no spike in yields anywhere near that sort of magnitude around the Brexit vote time ie 23/6/2016. Unless this was in a very small window eg an inter-day panic and immediate recovery which doesn't even show up on a 10 year graph. 

In fact in the summer after the Brexit vote the yields went down and never seemed to reach the levels in May 2016 until 2022!

I was basing on Barrons yield curve data, going from a little above 1.2% to just over 1.9%, then moving in the 1.4-1.9% range until mid-2019, then almost unbelievable lows of under 0.5% in April 2020. 

The data appears to be tracking BOE base rate. Which is what you'd expect. 

Yes, there is no doubt there is a long term trend following base rate movements, but there are considerable short term swings between base rate changes. This digression started with zagfles observing that there has been a 20% gain in the 50 year gilt price, corresponding to a 1% drop in YTM, over the previous 2 weeks. There are plenty of examples of such volatility recently that cannot be explained by changes in the BOE base rate. But, yes, acknowledge that those base rate rises following the Brexit vote have muddied the waters on that particular example as yields would be expected to rise post-May 2016 on this alone. Of course, rates were dropped in March 2020 because of the pandemic.

Since August when Gilt yields peaked. While waiting to see if there was another leg to go. YTM's have declined generally. TREASURY 0.875% 31/01/2046 (TG46) is also up 20% from it's 2023 low price. 

dealyboy

@masonic vs. @zagfles next venue Madison Square Gardens  .

aroominyork

masonic said:

aroominyork said:

It is clear to me that trying to time fixed interest markets is outside my skillset - I am no masonic!

That was quite a unique set of circumstances - with interest rates at all time lows and inflation starting to bite, it was not difficult to see what was going to happen. I won't be making any high conviction bets now that we are in a normal range for interest rates and bond yields. Corporates always take a bit of a beating if a recession comes along, but there is no way of predicting when the next one will come along. If you are holding long term for yield rather than rebalancing purposes, then price fluctuations should not be a concern.

Can you explain this please? The Man GLG fund's yield is higher than the sector's average and I think the manager is good at identifying risk-adjusted opportunities. By "rather than rebalancing purposes" are you saying the approach to (annual) rebalancing should be approached differently with fixed income than with equities?

zagfles

masonic said:

zagfles said:

masonic said:

zagfles said:

So Brexit had no or minimal effect (prices still sky high well into 2021) yet stuff happening since has? Really?

No, the 50 year gilt yield nearly doubled in the wake of the Brexit vote, along with currency and stock market turbulence. It was more pronounced than the 20% reduction in gilt yield you brought up or the 40% Trussonomics spike.

Which one in particular? I've just looked at a couple of long dated gilts both normal and IL and there is no spike in yields anywhere near that sort of magnitude around the Brexit vote time ie 23/6/2016. Unless this was in a very small window eg an inter-day panic and immediate recovery which doesn't even show up on a 10 year graph. 

In fact in the summer after the Brexit vote the yields went down and never seemed to reach the levels in May 2016 until 2022!

I was basing on Barrons yield curve data, going from a little above 1.2% to just over 1.9%, then moving in the 1.4-1.9% range until mid-2019, then almost unbelievable lows of under 0.5% in April 2020. The trouble with going back almost a decade is that you lose resolution. ISTR there was much shock and intra-day movements in various markets were quite something, but the charts no longer do them justice. Anyway, I think this thread has been derailed enough without relitigating Brexit.

Can't even see that here https://www.barrons.com/market-data/bonds/tmbmkgb-50y?countrycode=bx

Mind you there was a lot of media hysteria, eg saying a <60% rise is nearly doubling

Anyway - that's it, I've come to the conclusion the market doesn't know what it's doing if it uses spot YTM to set value on something that lasts decades, so I intend to make a fortune by buying loads of long dated gilts next time it panics. Come back Truss Mind you we'll probably have a Labour govt next year and they're sure to do something daft. I'll be ready!

I am probably joking.