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Cororate Bonds - what's not to love?
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ANDREW FOSTER
Posted: 12 February 2025 10:59:00(UTC)
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Just interested in peoples thoughts and views on Corporate Bonds.

There is much discussion on these boards about equities and gilts and the assciated IT's and ETF's etc.

But it appears to me that there is little interest here in Corporate Bonds in general.

For my ppart, I've been buying into Corporate Bonds for about 6 months now, in various forms. Most of which are in the 'High Yield' area.

To me there are pro's and cons of course...

Higher yield than gilts in general
Different tax position outside wrappers
Higher risk than gilts

Returns have been steady and positive, and I'm about 25% Corporates 10% Fixed Income (CoD, Tier 1/2 etc )

So curious about why the lack of general interest in them. Am I missing something? Would like to hear thoughts... And specifically, why people choose Gilts over Corporates..?
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6 users thanked ANDREW FOSTER for this post.
OmegaMale on 12/02/2025(UTC), Jed Mires on 12/02/2025(UTC), SF100 on 12/02/2025(UTC), L.P. on 12/02/2025(UTC), Jesse M on 12/02/2025(UTC), AlanT on 13/02/2025(UTC)
Jed Mires
Posted: 12 February 2025 11:39:22(UTC)
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I have held some corporate in the past, the last one I sold off a few years ago was Tesco. The spread on buying individual corporate bonds was one negative and of course the credit risk of holding only a hand full of bonds. In comparison to holding an investment grade corporate to holding an individual gilt with the obvious credit risk there isn't enough extra yield to compensate you. In my opinion holding corporate bonds via a cheap fund is a lot less hassle. Only my views of course.
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ANDREW FOSTER on 12/02/2025(UTC), Guest on 12/02/2025(UTC)
Elspeth Beaton
Posted: 12 February 2025 12:25:51(UTC)
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My bond fund -Vanguard Global Bond Index Fund hedged to the pound-which is the only bond fund I have in my Asset Allocation and have held for many years has around 20% in Corporate Bonds
Equity like products but have their place in a bond index fund
xxd09
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dlp6666 on 13/02/2025(UTC)
Big boy
Posted: 12 February 2025 12:48:51(UTC)
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During certain times in history we have seen Corporate Bond defaults and therefore the risk reward imo is too high.

In the past I have used interest rate sensitive ZDPs with their assured growth. Can also have better tax treatment but sadly most of them are disappearing and the SPLIT NBPE redeemed their stock recently.
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SF100 on 12/02/2025(UTC), ANDREW FOSTER on 12/02/2025(UTC)
Dexi
Posted: 12 February 2025 14:32:44(UTC)
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I`ve got a selection of bond ITs like many people on here ( SMIF BIPS NCYF CVCG etc ) , attracted by the high divi . One question though - if these were acc. only funds with no pay outs , would they still be popular ?
From a logical standpoint , they don`t make a lot of sense - same TR as a global income ETF , but more risk .The only real use I can see for them is in a pension or ISA where , for whatever reason , a high income needs to be generated .
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dlp6666 on 13/02/2025(UTC)
DIY Investing
Posted: 12 February 2025 17:36:54(UTC)
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I’ve nothing against the concept of corporate bonds generally, it’s just that a) they don’t fit with my current investment time horizon and volatility tolerance, and b) they don’t look to me to be great value at the moment.

The usual criticism would be that they haven’t historically held up as well as so called high quality government bonds when equity markets crash. I just see them as a different kind of investment with a different use case.

I think historically, corporate bonds have been used to generate income for investors with a bit less volatility (usually) than dividend stocks. The problem is in the low interest rate environment we’ve been in for years, investment grade corporate bonds haven’t really been much use when it comes to generating income.

Then they crashed when rates increased due to the more inflationary environment we’ve been in since 2021 which may have made people think twice.

Even now, looking at the yields on offer with investment grade credit, there just doesn’t seem to be as much of a risk premium on offer as there really should be.

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ANDREW FOSTER on 12/02/2025(UTC), AlanT on 13/02/2025(UTC)
Mr Spock
Posted: 12 February 2025 22:09:26(UTC)
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In the US, spreads over Treasuries are at the lowest levels since COVID:

https://fred.stlouisfed.org/series/BAMLC0A0CM

I don't know about Europe but I believe it is a similar story.
Not much risk premium then.

Plus, if one buys individual debt holdings, bid-ask spreads are significant.

I prefer Gilts in the UK space.
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Guest on 13/02/2025(UTC), Bob Brook on 13/02/2025(UTC), Dexi on 13/02/2025(UTC)
LondonYank84
Posted: 12 February 2025 22:22:30(UTC)
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It really depends on the particular role you see bonds playing in your portfolio.

Personally,I take the Bill Bernstein approach that equity is where you want to take your risk, and the role of bonds is to provide safety and negative correlation during a crisis (so I can buy more stocks).

Lots of discussion on this in Bogleheads
https://www.bogleheads.o...m/viewtopic.php?t=408461
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ANDREW FOSTER on 12/02/2025(UTC), Guest on 13/02/2025(UTC), ALAN P on 13/02/2025(UTC), The Penguin on 14/02/2025(UTC)
Thrugelmir
Posted: 12 February 2025 23:41:27(UTC)
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Joined: 01/06/2012(UTC)
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ANDREW FOSTER;334078 wrote:




For my ppart, I've been buying into Corporate Bonds for about 6 months now, in various forms. Most of which are in the 'High Yield' area.



Care to share where you've been investing?

Corporate Bond market in the UK is only a fraction of the value of that of Government Gilts. As the number of listed companies have fallen so has the issuance. Market is generally illiquid and not accessible to retail investors as a consequence.

Held IT's such as CQS New City High Yield Fund Ltd (NCYF) over the years. Since the GFC has been at an almost consistant premium.

Always open to new suggesstions.
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Neminem Laedit
Posted: 12 February 2025 23:56:49(UTC)
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Thrugelmir;334176 wrote:
Always open to new suggestions.

https://www.wisealpha.com/

Disclosure: I am invested in the Company.
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Guest on 13/02/2025(UTC), dlp6666 on 13/02/2025(UTC)
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