Ishrc � Discussion Threads

[davebowler] 29/4/2009 10:36

Borderbill, how about NWBD -it has its very own thread on ADVFN

[borderbill] 21/4/2009 15:27

they should get out there and buy the slxx constituents in size !

[jonwig] 21/4/2009 15:05

Poor take up of BoE's reverse auction for CBs.

[borderbill] 20/4/2009 09:09

Yes tone does seem to be improving, esp against backdrop of weaker long end of gilt market. I seem to have been buying these for months now but have to say I have had my fill, my portfolio is looking rather unbalanced ! Average price about 102 ! Bill

ps any good pref fund suggestions from anyone. I hold many of may investments in a Ltd co and think the taxation treatment is more favouravble (ie the income from prefs is considered 'franked' and not subject to a further Corp Tax charge).

[jonwig] 18/4/2009 11:11

FT Market Comment:

Investment grade corporate bonds continued to strike a better tone as measured by the cost of protecting debt against default in the credit default swap markets.

The main iTraxx Europe index saw spreads, or risk premiums, decline another 7.55 basis points to 148.25bp this week, extending the falls in debt insurance costs since the recent peak on April 1, according to data from Markit Group. In the US, the CDX investment grade index narrowed 7bp to 176bp.

The cash markets for corporate debt have not improved as rapidly due to a continuing lack of liquidity and recent hefty new debt issuance. But, many investors prefer good quality bonds over equities.

"Given the real risks that the economic growth will be sub-par for a sustained period of time, we have retained an investment posture that is tilted more toward opportunities in the credit markets than the equity markets," said Mr Fowler.

Some analysts believe the improvement in the more liquid derivatives markets and the continued good demand for new bond issues from high quality companies is a good sign.

[jonwig] 15/4/2009 11:09

FT today:

View of the Day: Credit's turning tide

By Hans Lorenzen

Published: April 14 2009 16:57 | Last updated: April 14 2009 16:57

The tide may finally have turned for the high-grade credit market, says Hans Lorenzen, strategist at Citigroup.

"Over the last two years, credit markets have stumbled from one bad headline to the next," he says. "However, we now get a sense the consensus has become so bearish that events may actually begin to surprise on the upside."

Mr Lorenzen notes credit spreads on investment-grade corporate bonds remain at levels not seen since the Great Depression. "So the mere improvement in the rate of decline in economic activity we expect later this year should allow a reduction in credit risk premia," he says.

He also points to several other positives. "The G20's commitment to boost funding to emerging markets is encouraging, and the market is more upbeat on the prospects for policy intervention."

But he still has concerns. "New issuance continues at a blistering pace, soaking up much of the cash coming into the sector. A long-anticipated rise in defaults is also occurring, and rating agencies are downgrading at a near record pace.

He also acknowledges that many banks remain constrained in their ability to lend. Above all, economic activity data will stay dire for now. "Yet, we are inclined to think all this is factored in. While many problems still lie ahead, for the first time since the credit crunch began, we believe high-grade credit spreads have reached their peak."

[jonwig] 11/4/2009 14:06

Peter Temple (FT, etc.) has bought SLXX:

[kiwi2007] 05/4/2009 21:45

...Investors ploughed a net £1.2 billion into investment funds in February, of which £1.1 billion went into bond funds, said the Investment Management Association. Most went into investment-grade bond funds which hold the kind of blue chips mentioned above - or so they claim.

[jonwig] 02/4/2009 15:05

A Gazprom bond is at No7 (3.3%) in the SLXX holdings.
Gazprom have just announced a successful SFR bond issue:

[jonwig] 01/4/2009 10:43

Recommended last week by David Stevenson in the FT:



(Another rising NAV to report - my timing might have been good ... accidentally, of course!!)

[jonwig] 31/3/2009 08:52

NCYF employs gearing, I see, which will exaggerate movements in NAV either way.

Anyway, the second day of rising NAV here prompted me to buy a few with the remaining cash in my ISA. Might add next week with new money.

There's an ETF which invests in index-linkers, INXG. I'll start a thread to monitor it, as I agree the possible emergence of inflation needs monitoring.
(Though the BoE has said it will do less QE than originally planned.)

[kiwi2007] 30/3/2009 21:26

Cheers Jonwig - good read. I see that SLXX has fallen 2% against LQDE and IBCX in the last two days - is the market sensing extra UK inflationary pressures, a general move from Stirling assets or a bit of both perhaps?

Personally I'm no fan of Stirling at the moment so have been adding New City High Yld Fd (NCYF) who's holdings are 50% non Stirling bonds.

[jonwig] 30/3/2009 17:16

Worth reading, I think:



NAV has actually risen by around £0.25 to 94.138, so trading at a slight discount.

[jonwig] 27/3/2009 10:22

A writer I respect, Kiwi. Thanks.

I'll probably buy back in here with new ISA money, but may wait for a sense that the NAV decline has bottomed - about three weeks of unbroken decline, I think!

Could be important:

[kiwi2007] 27/3/2009 09:38

The Short View
By John Authers
Published: March 27 2009 02:00 | Last updated: March 27 2009 02:00


Equity markets are cheering up. Why will credit not come along?

Perhaps the greatest cause for concern amid the equity rally is that credit markets, the target of all the rescue operations, are still working on the assumption of absolute disaster.

Deutsche Bank has published a study of how gloomy a reality the credit market is predicting. It takes the current spread between the yields on corporate bonds and similar government bonds and derives the default rate needed over the next five years for the corporate and government debt to end up paying out the same amount.

This varies depending on the recovery rate - the proportion of the principal on defaulted bonds that is recovered.

If recovery rates are at the historical average, the iBoxx investment grade corporate bond indices are priced for default rates of 38 per cent in Europe; 40 per cent in the US; and 51 per cent in the UK - all worse than in the Depression. If recovery rates are zero, the implied default rates range from 24 per cent to 31 per cent.

The worst five-year default rate since 1970, in all three jurisdictions, was 2.4 per cent.

Nothing has changed in the two weeks since Deutsche ran the numbers, even as equities have rallied. Bonds rated BAA by Moody's now trade at a spread of 6.78 percentage points over Treasury bonds, near last year's high of 7.2 percentage points. In February this spread was much tighter at 6.14 percentage points.

What do we learn from this? First, equities and credit cannot both be right, so those who like equities should pile into credit.

Second, there are only two explanations for the divergence. Either the credit market is so illiquid that these numbers bear no relation to the outcomes that investors expect; or we are in for a re-run of the Depression. The success of the rescue plan, the rally in equities, and much else besides, is predicated on the first explanation being correct.

www.ft.com/shortview

And the NAV continues to fall -

[hazelton] 26/3/2009 07:02

The gilt auction failure will not help. Long interest rates will have to rise. It may be instructive to watch Index Linked Gilts.

[kiwi2007] 25/3/2009 10:04

The NAV continues it's decent - £94.29 now - however, the latest dividend is due into accounts from today.

[kiwi2007] 15/3/2009 20:24

Three excellent (3 minute) FT videos on QE from Roger Brown, the bond bigwig at UBS .

Clarified, for thickos like me, the the whole QE scenario, how it works, it's relationship to corporate bonds and what it may lead to.



Unfortunately I'm still unsure as to whether SLXX are a buy or sell ;o)

[jonwig] 14/3/2009 13:05

Alun - I'm in the same position as yourself: out and looking to reinvest.

I think there are four things to consider:

(1) worth waiting three more weeks for the new ISA season, so you can get the gross benefit (if your circumstances permit, of course),

(2) presumably a bond would be given a negative rating before it defaulted, and so would be sold out of the index and replaced. This means that SLXX would not feel the full pain of having a constituent simply go to zero, whilst the running yield would hardly change,

(3) worth re-reading the FTAlphaville article posted up by Kiwi (post #150).
It's also here:



(4) QE ought to have at least a neutral effect on CB prices - I can't see how it could impact negatively.

I've omitted the biggest factor - how markets go from here. But then I've no worthwhile thoughts to contribute on that score!

[alun rm] 14/3/2009 12:38

Hosede,

I think you are right, the government will do anything it can to avoid full nationalisation of the banks, if the bank bonds go then the systemic collapse is really too terrible to imagine. Pension funds would be in serious trouble and would have to sell their equity to maintain their ratios, further weakening the markets, etc.

I am still glad I sold SLXX though - it just gets hammered, no matter what happens to GILTS or the equity markets. Surely at some stage it must find a bottom and start to look like good value.

I wonder what the yield has to reach before these bonds turn around? With interest rates at an all time low and little or no inflation to speak of at the moment, surely they are good value at this price?

I remain on the sidelines. I had a punt on BP (I couldn't resist at 404p) but otherwise I am just finding it very hard to value anything at the moment. The volatility is beyond belief and danger lurks in every corner.

Eventually, those that haven't been destroyed by the bear market are going to be richly rewarded. Cash is king at the moment, but slowly but surely the tempation to take on risk for outsized rewards is growing.

Anyone want to guess a bottom on SLXX? I would say £85 if we get another surge of fear about the financial position of the banks.

[hosede] 13/3/2009 11:16

Alun
I guess Govt.s have more than one way to nationalise banks, but the only one which would be bad for bondholders would be if they declared the banks insolvent,and bought them in a (prepackaged) bankruptcy. The bonds would then default and the bondholders would have to be paid out on a percentage basis - all very time consuming and messy! The current strategy of pumping money into the banks by purchasing equity (or prefs) dilutes existing shareholders, but improves the security of the bondholders. Given the dependence of most pension funds on corporate bonds would the Govt really choose the bamkrupcy option?

[jonwig] 13/3/2009 08:28

Kiwi - thanks for the Alphaville - as a holder of an oil ETF I know the dangers there but thought SLXX (which I'm out of currently) would be more transparent.

BTW, in FTAlphaville, if you click on 'more' it just expands the existing window, but if you click on the title you get the article in its own window with a URL to save or link to in future.

[kiwi2007] 13/3/2009 01:12

Anyway, below NAV at the moment.

As for corporate bonds in general and Sterling ones in particular - I wonder whether the fall(s) are a reflection of the lack of confidence in QE working as hoped (just creates inflation but few jobs) and the UK economy being somewhat a dead duck if it doesn't?

The new NZ prime minister John Key, who's also an ex ML banker, said in an interview that he is dubious about QE working but believes the US is probably intent on inflating it's problems away. So, maybe index linked IS the way forward. In that case which to choose? Another ETF perhaps?