by The Investor
on April 9, 2010
When government bond yields are too low to be attractive and investment grade corporate bonds are no longer cheap, ever-greedy investors often look to high-yield (junk) bonds as a way of getting more income for their money.
In early 2010, for example, junk bond sales were at a record high:
Companies worldwide issued $38.3 billion of junk bonds in March, passing the previous high of $36 billion in November 2006, according to data compiled by Bloomberg.
Yields fell 0.95 percentage point to within 5.96 percentage points of government debt, the narrowest gap since January 2008.
Most of that buying will have come from specialist funds and institutions. But plenty of those funds will be driven by private investor demand – and some private investors may also be buying junk bonds directly.
Investing in junk bonds is a dubious idea at the best of times; personally, I think most of us should skip corporate bonds and stick to Government bonds and equities, although that’s hard when Government bond yields are very low.
But certainly, investing in junk bonds when everyone else is doing so has to be a recipe for potential disaster.
Bond default risks are very real
Corporate bonds can and do default. The probability of a bond default is strongly reflected in the credit rating assigned to the bond by the rating agencies.
Non-investment grade bonds – the less scary name for high-yield or junk bonds – have seen pretty high default rates in the past.
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by The Investor
on April 6, 2010
A recent advert for the Natwest Black Card states it charges an APR of 51.8%.
Now, everyone knows that RBS Group, the megabank that owns Natwest, is a bit down on its luck. It’s 84% owned by the UK government after seeking shelter from oblivion during the credit crisis, and it can use all the cash as it can get.
But to qualify for a Natwest Black Card, you need to earn £75,000 a year.
Who – models, and footballers aside – could hold down such a job, and yet be dumb enough to pay an APR of 51.8% on a credit card?
Also, would the Government really allow ‘their’ bank to charge the sort of interest rates you’d normally associate with doorstep lending and a donkey head in the bed if you get behind on your repayments?
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by The Investor
on April 3, 2010
With recycling tin cans as his only source of income, Curt Degerman lived frugally and invested to amass over £1.1 million.
Still think you need to earn a huge salary to retire rich?
Degerman would have made a great Monevator reader, although the now-dead 60-year old took things further than most of us need to.
- I don’t advocate readers live as a tramp to reduce their costs.
- A shower once in a while won’t hurt, either.
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by The Investor
on April 1, 2010
Most first-time buyers are celebrating the removal in the Budget of the 1% stamp duty tax on their first house purchase costing up to £250,000. The stamp duty has been scrapped for two years.
According to the Council of Mortgage Lenders, 92% of first-time buyers buy properties costing less than £250,000, and these first-time buyers will save up to £2,500 when they purchase their home.
In London and the South East, however, first-time buyers are making stuffed straw versions of Alistair Darling and setting them alight with flaming torches fashioned from estate agents’ listings.
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