Bonds and Misery

boingy

FT article today:

Bond market braced for rise in UK debt issuance to £300bn this year

masonic

SnowMan said:

Just wondering what the thoughts of masonic and OldScientist and others are on this. Does the data back up my observed differential? And how would investing in 10 year maturity gilts (rather than 5) and then reinvested at maturity in another 10 year gilt change the comparison based on historical data? And how would best buy 1 year fixed rate or easy access, vs 5 year fixed rate savings alter the historic comparison?

One other factor that shouldn't be overlooked is the somewhat negative correlation between bond funds and equity funds. If your objective is to reduce volatility, then a smaller measure of bonds can potentially achieve the same effect. Though this has been more successful at some times than others, and the effect would be very small at a high % equities.

It would be interesting to compare cautious mixed asset funds to cash and pure bonds, but finding sufficient historical data would be a challenge. In theory at around 20% equities and 80% bonds, the mix would be less volatile and deliver higher returns than 100% bonds, assuming regular rebalancing.

MK62

You may already be aware of this, but there is savings account data here, going back to 1999.....
https://www.bsa.org.uk/getmedia/29c71e87-72f8-4890-b9cf-655f3a406c11/Saving-Int-Rates-PUBLISH.xlsx

masonic

MK62 said:

You may already be aware of this, but there is savings account data here, going back to 1999.....
https://www.bsa.org.uk/getmedia/29c71e87-72f8-4890-b9cf-655f3a406c11/Saving-Int-Rates-PUBLISH.xlsx

Thanks, yes the challenge is accounting for the margin between average or recommend rates vs the top rates of the time. The margin will obviously be greater in the present when competition is high and knowledge of the best rates is at the tip of most people's fingers.

P933alilli

masonic said:

P933alilli said:

I wondered when interest rates do eventually start falling will bond prices in funds such as life strategy start increasing straight away or is this already factored in because of the expectation that lower rates are on the way?

There was some increase around the time rates started to fall, but it could easily have been missed.

Vls 20 and 60 both increased relative to vls 100 in the last two days so i take it this will just be a blip until the possible next interest rate cut?

masonic

P933alilli said:

masonic said:

P933alilli said:

I wondered when interest rates do eventually start falling will bond prices in funds such as life strategy start increasing straight away or is this already factored in because of the expectation that lower rates are on the way?

There was some increase around the time rates started to fall, but it could easily have been missed.

Vls 20 and 60 both increased relative to vls 100 in the last two days so i take it this will just be a blip until the possible next interest rate cut?

I can't see what you are describing. There's a clear divergence due to the % equities on US election day and the day of the result, but no narrowing over the next couple of days.

P933alilli

masonic said:

P933alilli said:

masonic said:

P933alilli said:

I wondered when interest rates do eventually start falling will bond prices in funds such as life strategy start increasing straight away or is this already factored in because of the expectation that lower rates are on the way?

There was some increase around the time rates started to fall, but it could easily have been missed.

Vls 20 and 60 both increased relative to vls 100 in the last two days so i take it this will just be a blip until the possible next interest rate cut?

I can't see what you are describing. There's a clear divergence due to the % equities on US election day and the day of the result, but no narrowing over the next couple of days.

Sorry, my bad explanation but the % increase in the price of one share in each of vls 60 and vls20 has been higher than the % increase of one share in vls100. It probably doesnt mean anything.

masonic

P933alilli said:

Sorry, my bad explanation but the % increase in the price of one share in each of vls 60 and vls20 has been higher than the % increase of one share in vls100. It probably doesnt mean anything.

Perhaps you are looking at a dodgy price feed. This is known to happen from some sources, especially over the weekend.

P933alilli

masonic said:

P933alilli said:

Sorry, my bad explanation but the % increase in the price of one share in each of vls 60 and vls20 has been higher than the % increase of one share in vls100. It probably doesnt mean anything.

Perhaps you are looking at a dodgy price feed. This is known to happen from some sources, especially over the weekend.

No, its on Vanguard's site!

 Last thursday & friday a single vls60 share increased by 0.19% and 0.27% respectively while a single vls 100% share increased by just 0.06% and 0.23% respectively!I thought it may indicate green shoots of the bond recovery!:)

masonic

P933alilli said:

masonic said:

P933alilli said:

Sorry, my bad explanation but the % increase in the price of one share in each of vls 60 and vls20 has been higher than the % increase of one share in vls100. It probably doesnt mean anything.

Perhaps you are looking at a dodgy price feed. This is known to happen from some sources, especially over the weekend.

No, its on Vanguard's site!

 Last thursday & friday a single vls60 share increased by 0.19% and 0.27% respectively while a single vls 100% share increased by just 0.06% and 0.23% respectively!I thought it may indicate green shoots of the bond recovery!:)

I think you may be hoping in vain. What you are describing can be seen in the chart I posted if you look carefully. Tabulating the actual price data, you get the following:

VLS100 rises 2.5% over two days during which time VLS20 flatlines. But you are focusing on the next couple of days where both funds rise slowly, but VLS100 is a little flatter after the initial surge upward. If you get your ruler out and use it on the chart, then you will be able to measure this, but it is barely perceptible.

So yes, you would be safe in concluding this means nothing.

A more important question is what do you think bonds would be recovering from? They seem priced about right for the economic circumstances and the yield curve has almost normalised. They have had a good 2024. If you look at a pure bond fund, this return is greater than you'd expect long term, but short term (1 month) the return has been negative - again this means nothing: