I’ve found myself staring at the screen this month considering whether prices on retail bonds have run too far and are expensive. I have a decision to make based on; I think they are expensive versus the time cost of money of being invested in nothing versus a better opportunity coming along at a later date.
In general I’m happy to continue to be invested as the bonds I have provide a return on my capital and the spread is such that I feel it unlikely I can sell and get back in again later at a better price and cover the lost interest whilst I’m out of the market.
But I’m dithering over buying anything new and I'm sitting on quite a bit of cash. Some of this may be psychological. I bought IPF2 at 86p so to now pay 100p is a barrier because when they rolled this bond it took a second attempt and the recent eurbond had a coupon approaching 10% if I remember correctly.
The same could be said of the PF23’s on which was trading at a YTM of around 9% and is now down to 5%. Which is right because I can’t help feeling 5% is as wrong as 9% was.
And then there is PAG3 which is year ago was trading at 110p a year ago reflecting a YTM of 3.8% and is now trading at 110p with a YTM of 3.4%. I appreciate the BOE base rate has fallen but Paragon is sitting on a huge pile of corporate defaults and nothing in the yield reflects the risk.
This is all caused by QE and there is nothing I can do about that but I’m still left with a decision to make about whether to invest now or invest later or to perhaps hedge my bets and buy some short dated bonds. I’m doing some of this already
In the back of my mind bonds look expensive, equities look expensive, commodities look expensive, bitcoin looks expensive. It feels like a bubble to me and I would hate to be investing at the top of a bubble only to find there were some great opportunities in 6 months time once fiscal and monetary stimulus starts to get withdrawn. On the other hand I can’t sit on the cash forever…
I’m wondering fellow posters share my concerns and how you are managing your portfolios at the moment