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Easyrider
Posted: 28 October 2022 10:28:54(UTC)
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Why do some posters find Government bonds difficult and confusing?
The basics are simple.
When issued they are issued at a price and offer a rate of interest called a coupon. If you hold them to maturity you will probably get your capital investment back, assuming the country which has issued the bonds doesn't go bust.
As an aside I have read about an investor who sold large areas of property in central London and invested the proceeds in Russian bonds just before the Russian Revolution.
The price of the bonds in the interim between buying and being redeemed can go up and down depending on the rate of interest.
If the rate of interest goes up the price of bonds falls and if it goes down the price goes up. The interest rates which countries pay on their bonds reflects their financial standing and credit worthiness, just like an individual borrower.
Obviously Liz Truss and her former Chancellor were not aware of this.
Some bonds have a relatively short life to maturity whilst others have a longer life. Some are indexed and some are not.
You can invest in individual bonds or invest through a fund.
Corporate bonds are similar but issued by companies. They are must less "secure" because companies frequently go bust whereas Governments rarely go bust because they are supported by their taxpayers.
"Bonds" issued by Building Societies and NS&1 are misnamed. They are basically savings accounts.
What's difficult about that?
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ANDREW FOSTER on 28/10/2022(UTC), Trev DIYer on 28/10/2022(UTC)
Bulldog Drummond
Posted: 28 October 2022 12:11:26(UTC)
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Easyrider;245524 wrote:

What's difficult about that?

If you buy a Gilt, Treasury or T Bill on issue and hold to maturity then the calculation is indeed very simple. Beyond that it starts getting more complicated. There was a poster here a month or two ago who had bought a linker fund last year in the correct expectation of inflation but when inflation came his holding was down 30%. EM government bonds are usually priced in USD, which brings in another factor. For corporate issues there is credit risk, which brings in another factor, and often illiquidity, and is probably best left to experts. "Investment Grade" sounds good but half of these are BBB rated, which is only a hair away from being junk. Then you have all sorts of quirky bond or near-bond things like CoCos, Prefs, PIBS, Convertibles, Perpetuals, etc. Moreover, many bonds give the issuer the right to redeem before maturity.
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Tim D on 28/10/2022(UTC), Thrugelmir on 28/10/2022(UTC), Raj K on 28/10/2022(UTC), Easyrider on 28/10/2022(UTC), SSJ on 28/10/2022(UTC), Guest on 28/10/2022(UTC), Fell Runner on 28/10/2022(UTC), Jimmy Page on 28/10/2022(UTC), Captain Slugwash on 28/10/2022(UTC), Trev DIYer on 28/10/2022(UTC), Guest on 28/10/2022(UTC), ty bgt on 28/10/2022(UTC), Rocca Billy on 28/10/2022(UTC), Harry Trout on 29/10/2022(UTC), Dexi on 29/10/2022(UTC)
Raj K
Posted: 28 October 2022 12:17:23(UTC)
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Understanding a simple bond that is bought at issue and held to maturity is simple but it gets a bit more complicated when you buy on secondary market? You have to work out the actual yield you are getting and as with equities many people might panic when the bond price goes up and down even though at maturity they get the principal back .

Index linkers are on another level I’m trying to figure that one out.

How do you buy a bond at issue or can you only via the secondary market? Can a PI do this via their ISA or SIPP. Sorry if this is a dumb question

Edit. I just had a look at HL .

For one of the Gilts on offer TREASURY 5% 07/03/2025 (TR25).

It has a buy price of £104.28 and says the running yield is 4.81 percent. So is it simple to say if you buy this now you will get 4.81 percent coupon each year from now until 07/03/2025 and then at maturity you get back £100 for each unit you hold? Or is the mistake many novices make
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Thrugelmir
Posted: 28 October 2022 12:30:55(UTC)
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Only around 50% of the global bond market is passively tracked in some form. There's a huge market out there that needs a degree of guidance to navigate.

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Rob B on 28/10/2022(UTC)
Rob B
Posted: 28 October 2022 12:33:01(UTC)
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I tried (and have clearly failed) to start a wholesome thread on Fixed Income yesterday evening.

Not everyone has your purported super intelligence in finding things so simple (combined with a wonderful dismissive nature), easyrider. A little reflection wouldn't go amiss.
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Keith Cobby on 28/10/2022(UTC), Guest on 28/10/2022(UTC), Thrugelmir on 28/10/2022(UTC), Trev DIYer on 28/10/2022(UTC), Harry Trout on 29/10/2022(UTC)
Keith Cobby
Posted: 28 October 2022 12:36:18(UTC)
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Rob B;245561 wrote:
I tried (and have clearly failed) to start a wholesome thread on Fixed Income yesterday evening.

Not everyone has your purported super intelligence in finding things so simple (combined with a wonderful dismissive nature), easyrider. A little reflection wouldn't go amiss.


I was just about to suggest Rob's new thread should be where this discussion is held. CW should consider some threads being 'pinned' at the top of the forum.
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Thrugelmir on 28/10/2022(UTC), Jimmy Page on 28/10/2022(UTC)
Fife Clive
Posted: 28 October 2022 14:07:43(UTC)
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I’m suddenly reminded of the Mark Twain quote as shown at the start of The Big Short:

Quote:
It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so


We can all look up bonds on Wikipedia and marvel at the relationships between price, yield, length to maturity and credit risk. If you think that’s enough to be a bond investor… well as Twain said, it might get you into trouble.
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4 users thanked Fife Clive for this post.
Rob B on 28/10/2022(UTC), Jimmy Page on 28/10/2022(UTC), Dexi on 29/10/2022(UTC), Guest on 29/10/2022(UTC)
Thrugelmir
Posted: 28 October 2022 14:32:59(UTC)
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Easyrider;245524 wrote:

Corporate bonds are similar but issued by companies. They are must less "secure" because companies frequently go bust whereas Governments rarely go bust because they are supported by their taxpayers.
"Bonds" issued by Building Societies and NS&1 are misnamed. They are basically savings accounts.
What's difficult about that?


Do companies they frequently go bust that leaving bondholders 100% exposed......... I'd say no.

Permanent Income Bonds are issued to the markets and form part of Building Societies capital. Nothing to do with savers.

The other thread is perfectly adequate. Doesn't require another one full of generalisation and misinformation.

PS. What happened after the 1917 Russian revolution....... bonds redeemed? You need to finish the book.
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Guest on 29/10/2022(UTC)
Thrugelmir
Posted: 28 October 2022 14:35:40(UTC)
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Rob B;245561 wrote:
I tried (and have clearly failed) to start a wholesome thread on Fixed Income yesterday evening.

Not everyone has your purported super intelligence in finding things so simple (combined with a wonderful dismissive nature), easyrider. A little reflection wouldn't go amiss.


Not failed at all. It's what the forum requires. Saves going over and over the same old ground.
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Rob B on 28/10/2022(UTC), Guest on 29/10/2022(UTC)
Easyrider
Posted: 28 October 2022 15:27:00(UTC)
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Rob B;245561 wrote:
I tried (and have clearly failed) to start a wholesome thread on Fixed Income yesterday evening.

Not everyone has your purported super intelligence in finding things so simple (combined with a wonderful dismissive nature), easyrider. A little reflection wouldn't go amiss.


>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>...........

I've invested in corporate bonds, gilts and New Zealand Government bonds.
I didn't find it difficult as a private investor.
I stayed away from junk bonds.
When I referred to BS "bonds" I was referring to saving products which are often marketed as "bonds".
Another product called a "bond" is a Prudence bond, but my understanding is that it isn't a bond.
It wasn't my attention to be dismissive. It was simply to open up a discussion. I was unaware of another post on this subject.
Everything can be made difficult, sometimes unnecessarily so. I tend to avoid investments which aren't readily comprehensible to me, or seem unnecessarily complicated.
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