Corporate Bonds Overpriced

Notice that 10 year gilt future is down by 11 points from highs. Yet BBB corporates of similar or even longer maturities are only quoted 2 -3 points down from their highs, with bid/offer three points or more. Just goes to show how illiquid the GBP bond universe has become, Brexit not helping, of course. Add to that credit risk and weakened covenants, and one would be mad to buy here despite need for income.

Comments

  • I suspect many investors are loathed to sell any of their "Fixed Income" portfolio, in particular UK Corporate bonds (orb), especially if they have a yield of around 5%.
    Recent investments into "Alternative income" eg infrastructure funds (HICL, MXF, JLIF, JLEN, BSIF, UKW & TRIG) have not been brilliant due to the Carillion Liquidation.
    Should one sell, where does one invest when Equity markets are so high? and have further to fall than Corporate bonds!
  • Not invest at all and sit on cash would be the best strategy in those circumstances. However, the increasing illiquidity of sterling bonds is a worry and could only be alleviated with much new issuance. Perhaps corporate treasurers will come to realise they better get in quick before it gets much more expensive...
  • Fang, moving out of Prefs, Pibs and Corporate Bonds into Cash (or a cash ISA for my "Stocks & Shares ISA portfolio) has been on my mind, in particular for the undated securities.
    However should interest rates go marginally up over a longer period of time, then I am willing to accept a small erosion of capital value.
    With the Equity markets being very edgy, further money may continue to flow into the "Fixed Income" sector, in particular securities offering yields above 4%, hence another reason not to sell.
    We need a "Crystal ball"
  • Agree with Shaun, all fixed income appears too expensive and equities seem to be falling by the day. ( I had Carillion) In desperation i have started opening new bank accounts and investing in some regular savers giving 5% !!! Even looking at cash isa's again. Seems to be a case of protecting finances at the moment
  • The powers that be have been trying to stoke inflation without result since 2008, could it be that they are finally about to get what they wished for, but all of a sudden and in spades?
  • Colin, I agree, I too have been monitoring what the banks have to offer in safe cash ISA's. Could be a safe haven for a couple of years during the impending storms.
    Never felt safe in stormy weather in my kayak, especially those coming off the Atlantic, due to rising water levels (USA interest rates).
    Can be difficult to remove oneself from midst of a storm (poor liquidity!)
    Been reviewing "transfer rules" to transfer "lumps of cash" from a Stock & Shares (ISA) to fixed term deposits cash ISA providers, which I believe is not a problem.
  • Long end concerns me, mainly because see Corbyn/Sturgeon in No 10. Dated can hedge https://www.barchart.com/futures/quotes/LU16/all-futures
  • You can short 10 year gilt future through 3GIS.
  • Thanks Fang, any for 30 year or undated ?
  • Not that I know of, Hind. Considering 10 year gilt yield at 1.7% at present compared US T note approaching 3% the mind boggles, considering GB risks that lie ahead. Just goes to prove how manipulative BoE has been ( or still is) but reality will hit, soon enough. Babyboomers desperate for yield need to realise, that technically the market is still strong, due to lack of issuance but fundamentally terrible, and much worse to come if McDonnell runs the treasury.
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