Anyone buying gilts right now?

Alexland

MaxiRobriguez said:

c10% of my portfolio now in bonds. If nothing changes in the near term this % will increase as I'll buy bonds over stocks at the moment. Still long on US (equal weighted/small cap) and China equities.  

I'm now 70% equites and 30% bonds and feeling pretty comfortable with that for what I plan to do with the money. My equities are developed world only which has done great recently and don't want to invest in China although I agree like the UK the valuations look attractive.

If my new mortgage wasn't such a monster I would probably be 80/20 right now. We used to have more in ISAs than the mortgage balance so were mortgage-optional but nevermind I'll just chug away paying for the same house twice and at least our kids will probably now get to inherit 2 family homes. I've reached a point where my income (which is still pretty good) is now dwarfed by both the scale of the mortgage and the scale of the investments so cannot make much difference to either.

zagfles

Alexland said:

zagfles said:

I've got an IL gilt ladder which I intend to use between retirement and SP age, leaving drawdown from mainly equity investments until later. But it's quite tempting now to swap them around, swap the short term for longer term IL gilts and use drawdown from equities before SPA, then either a ladder or annuity with the gilts after SPA. 

If you can see enough return from the IL gilts to grow old with then wow that's great although it would be putting all your retirement income provision the trust of the UK gov which carries some risk. I don't really understand how you would be able to rely on equities for the early stage of your retirement given their volatility.

zagfles said:
Personally I wouldn't even consider longer term flat gilts, anything over 10+ years has to be linkers. 

I guess it depends how we plan to use the money tied up long term in gilts. I am matching them against a specific liability that's not going to increase with inflation (my mortgage) so the effects of inflation in the next decade (or more if my protected pension access age doesn't work out) doesn't really matter..

I don't really need a lot after SPA as SP plus DB will provide the vast majority of income. If anything it's safer to draw on equities earlier as less chance of major correction happening in a shorter timescale. 

Yes liability matching is sensible, so flat gilts would be sensible for paying off a mortgage, but not for covering living costs in decades time. 

zagfles

MaxiRobriguez said:

zagfles said:

MaxiRobriguez said:

Been a while...

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

Can see the appeal of government stoking inflation to reduce debt burden but reality is they'll be booted out of office if inflation ticks upward and remains high.

Just feels like being paid reasonably well to hold what is a net upside opportunity.

Why? As long as peoples' incomes are rising with inflation most won't care, so maintain the triple lock, index benefits etc, generally wages will rise with inflation or more (in fact that's often the main cause), and inflation is good for people with debt, like mortgages, in the same way as it's good for indebted governments. 

Countries like Turkey have had sky high inflation for decades on end, it doesn't cause rioting on streets, people learn to live with it and cope with it. I don't think we'd ever get that bad, but I wouldn't rule out a tweaking up of the BoE inflation target. It's less likely to cause a drop in govt popularity than alternatives like increasing taxes or cutting NHS spending etc to fund debt interest.  

I don't think using Turkey as a comparison is sensible. Look at Europe and the US: Governments of both left and right which have been in position when inflation was high have been booted out at the first opportunity. Partly the reason is because people's incomes don't all rise with inflation. Only a minority of extremely fortunate boomers who can call upon an IL DB pension and the triple lock can sit back with their feet up whilst everyone under the age of 60 gets hit with their own triple lock of fiscal drag, tax rises and income stagnation. 

You mean public sector DB pensioners, which includes people of all ages. The vast majority of private sector DB pensions are not fully index linked and would get badly hit in a high inflation environment, there is no mandatory index linking of pre-1997 service and post 1997 is generally capped at 5%. Even short periods of high inflation can decimate DB pensions, the recent high inflation would have knocked maybe 10-15% off pensioners real income. 

Wages are far better protected from inflation. Look at any chart comparing wage growth with inflation. Wage growth is often the cause of high inflation. High inflation will hurt people with flat annuities, with capped DB pensions, with fixed interest investments like bonds, and it will help people with big debts like a £300k mortgage. So in general high inflation is far worse for older people than younger people. 

Of course high inflation could be a symptom of other economic issues. If Greece had had their own currency and could inflate their way out of problems the economic impact on their citizens of the GFC would likely have not been anywhere near as bad. 

Hoenir

zagfles said:

MaxiRobriguez said:

Been a while...

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

Can see the appeal of government stoking inflation to reduce debt burden but reality is they'll be booted out of office if inflation ticks upward and remains high.

Just feels like being paid reasonably well to hold what is a net upside opportunity.

Why? As long as peoples' incomes are rising with inflation most won't care, 

Economic reality maybe such that the employer is unable to afford inflation linked payrises. Or indeed retain all existing employees on the payroll. The old saying. When somebody else loses their job it's a recession. When they lose their own it's a depression. 

zagfles

Hoenir said:

zagfles said:

MaxiRobriguez said:

Been a while...

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

Can see the appeal of government stoking inflation to reduce debt burden but reality is they'll be booted out of office if inflation ticks upward and remains high.

Just feels like being paid reasonably well to hold what is a net upside opportunity.

Why? As long as peoples' incomes are rising with inflation most won't care, 

Economic reality maybe such that the employer is unable to afford inflation linked payrises. Or indeed retain all existing employees on the payroll. The old saying. When somebody else loses their job it's a recession. When they lose their own it's a depression. 

I said "As long as...". Anyway during the GFC inflation went very low and even negative and lots of people lost their jobs. Inflation doesn't necessarily correlate with job market contraction, quite often the opposite. Inflation is often correlated and even caused by high wage rises. Inflation means products and services sell for more, meaning companies charge more and so have more income. Obviously the effect varies dependant on sector. During the 1970's the govt were desperate to restrict runaway wage increases. It was a good time to be a worker, a bad time to be reliant on a pension or investments. 

Baldeagle095

Will these increasing gilt yields be reflected in savings account rates?

Surely this will impact on the much vaunted prospective BOE base rate cuts of 3 or 4 this year?

Johnjdc

Baldeagle095 said:

Will these increasing gilt yields be reflected in savings account rates?

Surely this will impact on the much vaunted prospective BOE base rate cuts of 3 or 4 this year?

The 1-year gilt is still yielding around 4% which implies a base rate somewhat below that by the end of the year.

The run-up is mainly at the long end. 5-year is up from 3.8% to 4.4% so one might reasonably hope for higher yielding long fixes.

GeoffTF

I bought a chunk of TG36 today. It is only about 2% of my portfolio though. It does not change my overall bond percentage. Equities have been rising and bonds falling recently, so selling equities to buy bonds could make sense as a rebalancing measure.

granta

Am following this thread with interest but I don't have any experience of buying bonds/gilts.

Is there an ETF that taps into this asset class? Also, how does one search for what to buy on mainstream platforms if buying gilts? Could someone please post a link to an example? [I'm not looking for recommendations as I'm not planning to buy but just wish to improve my understanding]

Alexland

zagfles said:

High inflation will hurt people with flat annuities, with capped DB pensions, with fixed interest investments like bonds, and it will help people with big debts like a £300k mortgage.

I'd love to only have a £300k mortgage that would be great. An amortization calculation suggests if i didn't make any overpayments it would take me around 250 months to get my balance down to £300k. It's kind of crazy the scale of mortgage I had to take out to keep the house while preserving most of my investment assets. It's a PITA to service the debt while making heavy pension contributions to avoid higher rate tax with the frozen thresholds then getting what little I do have to spend squeezed by inflation. That's why I'm looking at the attractive yield on gilts thinking they are a great way to use a proportion of my investments to cover the liability if I want to retire early in a decade's time.