Let's discuss... corporate bonds

masonic

Linton said:

Dead_keen said:

Linton said:

Dead_keen said:

Linton s

I am somewhat bemused by the concept of “older staler” bonds. Can you explain? Surely a bond continues paying the specified interest unless the issuer goes bust at which point the bond becomes valueless.

Have a look at this from April 2025: https://www.ft.com/content/ef86ccae-bcbf-4975-bb23-d1a39b7523df

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Thanks - the article is talking about trading corporate bonds, which seems to be easier in the US than the UK, and that some of those bonds are rarely traded and so don't change in price.  Therefore they are of no interest to traders. However they would still be generating the same interest they always did. Trading corporate bonds for profit is a very different scenario than using corporate bonds for income.  

A fund that is suffering net outflows would need to redeem holdings in order to repay exiting investors. You do tend to see that liquidity filters get applied to bond indexes, and active managers are probably wary of loading up on illiquid bonds.

DavidT67

Platforms such as WiseAlpha do exist which allow retail investors access to corporate bonds and offer fractional interests.  

Dead_keen

masonic said:

Linton said:

Dead_keen said:

Linton said:

Dead_keen said:

Linton s

I am somewhat bemused by the concept of “older staler” bonds. Can you explain? Surely a bond continues paying the specified interest unless the issuer goes bust at which point the bond becomes valueless.

Have a look at this from April 2025: https://www.ft.com/content/ef86ccae-bcbf-4975-bb23-d1a39b7523df

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Thanks - the article is talking about trading corporate bonds, which seems to be easier in the US than the UK, and that some of those bonds are rarely traded and so don't change in price.  Therefore they are of no interest to traders. However they would still be generating the same interest they always did. Trading corporate bonds for profit is a very different scenario than using corporate bonds for income.  

A fund that is suffering net outflows would need to redeem holdings in order to repay exiting investors. 

Exactly.  An open-ended corporate bond fund may find that lots of investors want cash and so effectively be a forced seller of things that are pretty illiquid / have large spreads.  

masonic

Dead_keen said:

masonic said:

Linton said:

Dead_keen said:

Linton said:

Dead_keen said:

Linton s

I am somewhat bemused by the concept of “older staler” bonds. Can you explain? Surely a bond continues paying the specified interest unless the issuer goes bust at which point the bond becomes valueless.

Have a look at this from April 2025: https://www.ft.com/content/ef86ccae-bcbf-4975-bb23-d1a39b7523df

Paywall                                    

You just need to register. It is free.

Thanks - the article is talking about trading corporate bonds, which seems to be easier in the US than the UK, and that some of those bonds are rarely traded and so don't change in price.  Therefore they are of no interest to traders. However they would still be generating the same interest they always did. Trading corporate bonds for profit is a very different scenario than using corporate bonds for income.  

A fund that is suffering net outflows would need to redeem holdings in order to repay exiting investors. 

Exactly.  An open-ended corporate bond fund may find that lots of investors want cash and so effectively be a forced seller of things that are pretty illiquid / have large spreads.  

Which affects those wishing to sell as they redeem at a depressed unit price or find the fund is gated. I've not heard of significant bond funds getting into liquidity issues (unlike property or a certain infamous "equity income" fund), but a depressed unit price provides a good entry point to a new investor, and is irrelevant to the long term investor. There are a few funds in the Investment Trust universe that are better suited to the illiquid side of the bond market. The fixed pool of capital avoids the vehicle being a forced seller and punishes those running for the hills and rewards contrarians through a large discount to NAV.