Inflation

I reckon the impending inflation expected soon might cause a fair old wobble on many markets. In the light of this, I have decided to sell lots of bonds and sit on the sidelines. I hope I might be able to buy them back cheaper in the next year or so. Otherwise, I will be struggling to find a place for the dough! I was happy and somewhat surprised to receive the quotes I got today. I sold around 4.15pm. I held onto ICG and PMO as they were quite small holdings anyway. I might sell the Tesco & Ladbrokes ones tomorrow in my SIPP.

sales 4 Jan 2017
Stock HELICAL BAR PLC 6.00% BDS 24/06/2020 (HB20)
Price £104.80

Stock CLS HOLDINGS PLC 5 31/12/2019 (CLS1)
Price £104.75

Stock BRUNTWOOD INVESTMENTS PLC FIXED RATE 6PCT 24/07/2020 (BRU1)
Price £107.00

Stock Burford Capital Plc 6.125% 26/10/24 (BUR2)
Price £107.04

Stock BURFORD CAPITAL PL GUARANTEED BONDS DUE 2022 (BUR1)
Price £109.06

Stock PARAGON GROUP OF COMPANIES INC 6.125% UNSECURED STERLING BONDS (PAG2)
Price £104.00

Comments

  • You're probably right.
    It's the sitting on my hands that I find so difficult (impossible).
  • I'm keeping fully invested, with 90% of portfolio in Fixed Interest Securities (Bonds, PIBS & Prefs)
    We may have some imported "inflation", however we still have a good supply of labour.
    Doubtful that "labour" induced inflation will return back to the UK
    Europe's economy , in particular Italy, Greece & Spain still in the doldrums.
    Likely to swap from Fixed Interest Securities into more equity funds when the FT100 crashes
    The problem is that the BOE is still pumping money into the system, inflating "asset" values
    Trump is not likely to help matters in the world economy. (Trade wars can start real wars!)
    Interesting times ahead
    My portfolio maturity dates (Years) percentages (Bonds, PIBS & Prefs)
    2019 = 12.0%
    2020 = 34.0%
    2021 = 3.2%
    2022 = 14.2%
    2023 = 10.7%
    Other years = 9%
    Undated = 18%

  • Bond markets set for a taste of the 60s as inflation picks up

    By Dhara Ranasinghe | LONDON
    Inflation has a habit of creeping up on you. Just ask historians.
    From rates below zero less than a year ago, inflation across the developed world has risen in recent months towards central bank targets, largely driven by a rising oil price.
    And if history is any guide, bond markets had better beware.
    Paul Schmelzing, a visiting scholar at the Bank of England from Harvard University, has studied 800 years of bond markets history and says the most relevant parallel with today's environment is with the late 1960s under U.S. President Richard Nixon.
    The United States was emerging from a prolonged period of low inflation, the jobs market was tightening and a new pro-business president had raised expectations of fiscal expansion. It was a bruising time for bond investors.
    U.S. bonds lost 36 percent in real price terms between 1965 and 1970, while annual consumer price inflation more than tripled in the period, to 5.9 percent from 1.6 percent.
    As the world's biggest bond market, what happens to U.S. Treasuries usually sets the tone for bonds across the world.
    The spectre of what Schmelzing describes as an "inflation reversal" could be the final nail in the coffin of a 36-year bull run in government bonds that has been underpinned by years of low growth and subdued inflationary pressures.
    "If you look at inflation expectations in the 1960s, no one expected them to rise so quickly but inflation can accelerate quickly and take people by surprise," said Schmelzing.
    Based on historical standards, bonds could be set for double-digit losses, he said.
    Other elements of previous sell-offs are also coming into play, creating the potential for a "perfect storm" for fixed income assets, he added.
    This includes a sudden steepening in yield curves, as witnessed in a sharp sell-off in Japan in 2003.

    END OF AN ERA?
    Bond yields globally have risen recently on Trump "reflation" bets and growing signs of strength in the global economy.
    U.S 10-year yields have risen about 65 basis points since the November election to around 2.50 percent, and German Bund yields -- the euro zone benchmark -- are near one-year highs just under 0.50 percent.
    Based on his analysis of bond bear markets, Schmelzing said that what is currently priced into market inflation expectations may be conservative.
    A sharp jump in yields on signs that inflation is taking off could be painful for bond investors and hurt savers.
    The interest rate on benchmark Bunds, for instance, is just 0.25 percent, so even a slight rise in yield can outweigh an investor's return and spark a snowballing sell-off.
    The 2015 "Bund tantrum" provided a taste of what happens when investors sense inflation building -- German yields rose sharply from record lows as data pointed to an inflation uptick.
    What that episode showed, said Schmelzing, is that inflation remains the key driver for bond markets. But what is different to 2015 is that the uptick in inflation appears more enduring.
    U.S. average hourly earnings rose 2.9 percent in December, the largest year-on-year increase since 2009, and Germany's unemployment rate is at its lowest level since reunification in 1990 -- suggesting the jobs market in Europe's biggest economy is tightening.
    China's producer prices surged the most in more than five years in December, while in the UK, many economists expect inflation will hit 3 percent later this year -- well above the Bank of England's 2 percent target.
    "What is changing is that we are no longer looking at economies with a lot of slack in them," said Lombard chief economist Charles Dumas.
    Pictet estimates annual returns in the next 10 years from U.S. Treasuries could be less than half the 4.8 percent of the past 10 years, while German Bunds, will on average deliver negative returns.
    For some investors, there is now a clear risk from the trajectory for higher interest rates.
    "The risk is greater for bond holders about rising interest rates now than at any point since the financial crisis," said Payson Swaffield, Chief Income Investment Officer at Eaton Vance, an asset management firm with $354 billion in assets. "There will be periods where we will question that, but I believe the landscape has changed."

    http://uk.reuters.com/article/us-global-bonds-inflation-idUKKBN15E200










  • In that kind of scenario, I am more worried about my preference shares than my bond holdings, which were bought at around par and have around 4 to 5 year maturities - at least I will get my original stake back on them (hopefully). The situation with the prefs could be worse over a 5 to 10 year term. The only reason that the ripples aren't really materialising significantly in the markets at the moment, I think, is simply because of the lack of alternatives. If banks start offering attractive deposit rates again, money could start pouring out of these retail investments.
  • The problem is that it is very difficult to compare to the past, the world is completely changed compared to the 1960s.
    The world economies are so very much more integrated, with the much greater flow of services & goods, whether raw materials or finished goods, with a much more competitive environment.
    The Trump administration seems bent on upsetting different businesses and national governments. With countries not getting along with each other so well, investors (eg China), may start to question their holdings in other countries national debt, in particular the USA. Inflation is part of a worry, but I suspect investors are more concerned re growing "nationalism" ( I don't care if my actions effect my neighbours)
    There is I feel more of a concern on this side of the "pond", on where Europe is heading, in particular the southern sector. Will Japan repeat itself over in Europe?
    10 Year Treasuries @ 0.01% yield
    https://www.investing.com/rates-bonds/japan-10-year-bond-yield

    10 year Government yields seem to to have stabalised in the past few 5 weeks
    https://www.investing.com/rates-bonds/world-government-bonds

    What's more likely to grow in the future, is Uncertainty! (and thus a poor investment climate)

    Finn2,
    As you say, investors are more "worried"
    I'm too watching this space, in the event I need to flog my undated securities
    Shotgun,
    Thank you for the article, interesting reading,
    US Treasuries may increase so much, however the "Trump Administration won't want to lose overseas trade from a over valued US dollar"

    Like being on a roller coaster
  • I have sent an email to LSEG to report the problem
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