Gilts: What a crazy world we’re livin’ in

Some time ago I bought quite a few gilts when the ten year YTM approached the dizzy heights of 1.5%. The idea was that if there should be a crash in equities then I would have the immediate means to take advantage of that. It takes two weeks or more to transfer from a cash ISA to a shares ISA.

Conventional wisdom is that share prices and gilt values go in opposite directions. But because of worldwide central bank actions all the rule books can be thrown out of the window. EVERYTHING now seems to be grossly overpriced. Even in the US there is talk of treasuries possibly approaching negative yields. Simultaneously the Dow and the S & P are at near all time highs.

So, if gilt yields continue to fall what to do? The push for yield has forced up the prices of everything.
I am considering selling at least some of the gilts and opening a peer to peer lending ISA with the proceeds.

Would anybody like to share their experiences or thoughts on P2P?

Comments

  • edited July 31
    central banks are responding the way they have done throughout the history, 1930's was previous eg, the current rule book comes from that period. It's easy to miss as one might not have studied history books or even otherwise inertia is often strong enough to miss a paradigm shift.

    https://www.linkedin.com/pulse/its-time-look-more-carefully-monetary-policy-3-mp3-modern-ray-dalio/

    EVERYTHING is being priced of same interest rate curve which is obviously at very low levels given low inflation and low growth rates. With fed rate cuts coming, everything goes up including stocks and gold. People move out further on risk curve, your decision to consider p2p is just another of such zillion examples out in the wider economy. That's the play book for monetary easing.

    There's time to make money and there's time to not lose money. Guess what time this is. Do your due diligence and keep a well diversified portfolio.
  • Seems utter madness to buy gilts (10 year maturities yielding 1% p.a.), rather keep my cash, some of it in SFR, USD. The risks here , i.e. Boris` spending spree, Labour perhaps next in power never mind unknown Brexit outcome post October are huge. May result in sterling crisis, and BoE forced to raise rates. When and if yields get back to more sensible levels, e.g. 3% +vicinity, time to look at it again.
  • edited August 1
    it's not madness, it's just plain old inertia, it's a really powerful force, looks like you enjoyed breaking yours

    do you have chf and usd bank accounts or something?

    sterling crisis would be a result of poor economic outlook, boe would be cutting rates not raising 'em

    3%+ might not happen in your lifetime, so you wouldn't have to worry about it, leave that problem to your kids
  • I have a couple of years experience of P2P via Zopa and Funding Circle although it may be more appropriate to start a new discussion on this subject rather than tag it on a gilt thread. For me returns have been lower than expected (although there are reasons for this) and I worry about what will happen in a recession. If I had my time again I would drip feed smaller amounts monthly rather than investing a lump sum. Happy to give more details if people are interested
  • edited August 7
    there will be big drawdown in a recession, but one is not likely anytime soon.
  • Index linked gilts would address the BoE raised rates argument. I have had a good run on these in my pension, but have called time on them for now. You get to the point where you have no confidence in investing in anything & have to make the least bad choices.
  • edited August 8
    Frugal...... I for one would love to hear more about your P2P experiences, either here or in a new thread of your own making.
  • In case it helps anyone. I have had P2P investments since 2005 (ZOPA), 2011 (Funding Circle) and 2013 (Ratesetters).
    Although the hope was that the level of defaults would be carefully controlled my experience was that for Funding Circle the bad debts were running at about 4.5% of capital which led to a loss of about a third of my interest payments. That loss plus tax (at the time) on the gross interest made it a poor investment so I slowly allowed all my loans to reach maturity and I am now just receiving small default payments for the bad debts. Note that the tax treatment of losses has changed and they can now be offset.
    ZOPA has had a number of changes, at times including a 'Safeguard' arrangement but nowadays can also be affected by defaults. I have dipped in and out over the years but currently am just reinvesting ISA repayments and adding no new money but withdrawing non-ISA repayments. My current default rates are about 2.3% of capital on my non-ISA fund which represents about17% of my interest and about 2% of capital on my ISA fund which due to the shorter age of the fund represents about 36% of my interest. It is difficult to give meaningful figures for the rates of interest being received on an annual basis but probably of the order of about 5 or 6% on the non-ISA and a little more on the ISA (before the cost of the defaults).
    Ratesetter has a different approach to defaults and build up a fund to meet defaults internally without impacting on individual investors. In this case I am seeing returns of about 5.5 to 6% but without any defaults.
    Do your own research obviously and bear in mind that to maximise returns you will need to keep an eye on what is happening and, preferably, do your own re-investment rather than just using automatic processes. It can therefore be a bit time consuming but overall I am happy that as an alternative investment stream it has been a worthwhile vehicle which I am still using. The fact that the three platforms I have mentioned have been in existence for as long as they have suggests that they have built up some level of resilience although I do seem to be seeing higher levels of default (in ZOPA at least) than in the earlier years.
  • Thanks Geoffp, good reading and gives a good steer on this arena.
  • Interesting to see Geoffp's experience. As I said I have less than 2 years at both Zopa and Funding Circle. Funding Circle is running at just under 6% annualised return (after default and charges) and Zopa under 3% on the same basis. I need to wait longer to see how the loans mature as in both cases I did a lump sum transfer from an ISA which means I was initially exposed to a lot of loans originating at the same time. As interest is received and loans are repaid this is invested in newer loans to get diversification over time. Zopa in particular mention that more defaults tend to occur in the first years of a loan than in the latter ones so I may see an improvement going forward. That is why I would prefer to have drip fed money in or did smaller transfers on say an annual basis. As a listed company you can read Funding Circle accounts and they have stated that they have seen a deterioration in loan performance since 2016 especially in higher risk categories. Again I have a concern of what would happen in a recession and would want to be diversified and have had a few good years built up in advance to offset a potential downturn.

    The other way to play this is to buy something like VSL or P2P which are listed funds trading at large discounts. Both have actually done ok but the share price has lagged because the 8-10% expected returns have not materialised and Mr Woodford has been a forced seller. I own both and topped up VSL recently whereas I haven't put any new money into Zopa or Funding Circle
  • edited August 12
    there will be big drawdown in a recession, but one is not likely anytime soon, not a major one at least.

    both vsl and p2p are doing lots of buyback, that's pretty good, it's like picking dollar bills for 90 cents.
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