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Weekend reading: Oops, bonds did it again

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What caught my eye this week.

The 10-year UK government bond yield has fallen back to barely 1%. Indeed yields are down again everywhere, as Bloomberg reports:

Bond yields around the world are tumbling to multi-year lows as the global shift by central banks to a more accommodative stance has put the kibosh on the oft-predicted but still-unrealized end of the long bull run in government debt.

Among the superlatives hit this week:

– Japan’s 10-year yield slid to its lowest since 2016 on Friday
– New Zealand’s equivalent slipped below 2 percent for the first time earlier in the day
– Yields on benchmark Treasuries have dropped this week to the lowest in more than a year
– Those in Australia are just three basis points from a record low
– The global stock of negative-yielding debt hit the highest since mid-2017

A quick way to be called a moron by people who know more than they understand over the past 5-10 years has been to suggest that bonds still have a place in most portfolios. A wealth-destroying crash was “obviously” imminent, you see.

But markets often move in the way that surprises commonplace assumptions, and that’s certainly been true of bonds.

(Click to enlarge)

Source: Bloomberg

This low yield era almost certainly won’t last forever. However a bit of humility is in order from all of us (including me!) about the timing of any long-lasting reversal.

Of course this is exactly why most people are best off investing passively and getting on with other things in life. (If you want to try to outsmart the unthinkable, there’s always Brexit.)

Have a great weekend! (Hope to see some of you on the march. 🙂 )

From Monevator

Why the 4% rule doesn’t work – Monevator

From the archive-ator: Wealth preservation strategies of the rich – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

40-year mortgages are becoming the norm – Moneyfacts

UK interest rates on hold amid Brexit impasse – BBC

Government borrowing falls to fresh 17-year low after surge in tax receipts – City AM

Regulator in spotlight over mini bond scandal [Search result]FT

Just 112 retirement interest-only mortgages have been sold in first year – ThisIsMoney

Employment growth fastest for women aged 65+, but it’s not always a positive – Guardian

Tech investors are asking for #MeToo clauses in start-up deals [Search result]FT

The start-up that looks into the future for the Next Big Thing – ThisIsMoney

Want kids? It’ll cost you [US but relevant]The Basis Point [with a h/t to Abnormal Returns]

Products and services

Coventry BS axes the top cash ISA deal – but Nationwide launches a 1.4% ‘loyalty’ rate – ThisIsMoney

Peer-to-peer pressure: Do the risks outweigh the rewards? [Search result]FT

Persimmon homebuyers can withhold 1.5% of property value until faults are fixed – Guardian

Shop loyalty cards ranked and rated – ThisIsMoney

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

HgCapital Trust: A [costly!] tech-heavy private equity investment trust – IT Investor

One investor’s hunt for green investments arrives at iShares’ Clean Energy ETF – DIY Investor

…more on this theme: Clean, green, but will it offer investment returns? [Search result]FT

How to use a floorplan to check the valuation of a potential house purchase – ThisIsMoney

Castles for sale [Gallery]Guardian

Comment and opinion

Is your strategy to have a bunch of money? Or is it to not need a bunch of money? – IBJ

The market won’t provide high returns just because you need them – A Wealth of Common Sense

New video explaining evidence-based investing in a nutshell – The Evidence-based Investor

We ignore the index providers’ power at our peril [Search result]FT

There’s no such thing as ‘the number’ [He concludes the same as me]Rad Reads

We all make mistakes – Of Dollars and Data

Head games – Humble Dollar

Death, taxes, and a few other things that are inevitable – Morgan Housel

Get rich with recycling – The Escape Artist

Twitter thread on simplicity versus complexity by an investing great – Jim O’Shaughnessy

Valuation is a better guide to future returns than hemlines – The Value Perspective

The trials and tribulations of ISAs, platforms, anti-money laundering – and Brexit! – S.L.I.S.

Angel investors are being squeezed out by institutional seed financiers – Tomasz Tunguz

Your home may be an investment, but don’t expect it to fund your financial goals… – Abnormal Returns

…more on the same research that found similar returns from housing and equities – Bloomberg

A commendably deep dive into a failing stock pick in the UK restaurant sector – Maynard Paton

What is ‘fair value’ for an equity, and why is it so misunderstood? – Jason Voss via LinkedIn


“Has anyone learnt? Has former Brexit secretary David Davis worked out that his plan to leave the EU while retaining “the exact same benefits” as staying the single market, was a little ambitious? Or that the Germans actually care more about the integrity of the EU than about selling Brits BMWs? Has Michael Gove finally noticed that we did not after all “hold all the cards” the day after we voted to leave? Has anyone worked out that frictionless trade is quite complicated, and that the dreary Brussels machinery does a good job for us?”FT [Search result]

May’s appeal falls flat as EU seizes control of Brexit date – Guardian

If on balance you’d rather not Brexit, sign the petition to revoke Article 50… – UK Government

…it has hit surpassed three million names at the time of writing… – Independent

…and email verification means the e-signatures are genuine – BBC

For Theresa May, “I’m a tin-eared lunatic” seems to be the hardest word – Guardian

Top Tory donor: Form unity government to solve the Brexit crisis – Guardian

When will Brexiters accept they were conned? – Byline Times

Kindle book bargains

How Women Rise: Break the 12 Habits Holding You Back by Sally Helgesen – £0.99 on Kindle

Narconomics: How To Run a Drug Cartel by Tom Wainwright – £1.99 on Kindle

The Complete Guide to Property Investment by Rob Dix – £0.99 on Kindle

Winners and How They Succeed by Alistair Campbell – £1.99 on Kindle

Off our beat

‘Lewis Hamilton of pigeons’ sold for world record €1.25m – Guardian

Instagram is the Internet’s new home for hate – The Atlantic

And finally…

“Investors are simply throwing away wealth.”
– Tim Hale, Smarter Investing

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []
{ 23 comments… add one }
  • 1 Norfolk March 22, 2019, 6:30 pm

    It’ll be interesting to see if this march in March will be the Maybot’s Tony Blairaq moment, when a tin-ear response to a reasonable and unequivocal, democratic request marks the turning point in power from legitimate to autocratic.

  • 2 AncientI March 22, 2019, 7:46 pm

    Lots of chatter today about the imminent “recession” that many people have been predicting for years given the poor German manufacturing numbers and the Yield curve inversion. Stock markets have also had a nice recovery from the December sell off so my question is , is it time to cash out of stocks and move into bonds?

  • 3 ermine March 22, 2019, 10:25 pm

    @Norfolk > Maybot’s Tony Blairaq moment

    Please God, no. He carried on for four years after that, we can’t take four more years of this!

  • 4 Gentleman's Family Finances March 22, 2019, 10:33 pm

    Short and sweet but you had to go an mention Brexit there at the end!

    It does confound all pundits and self-appointed experts the way the economy is going – bonds at 1% – good for some I suppose, I might get my old final salary pension buy-out valued, I could be a millionaire at these rates. 🙂

  • 5 Ben March 22, 2019, 11:24 pm

    Don’t worry about that yet, it’ll happen just as Brexit happens, or just as it’s cancelled. Just in time to start a fresh round of recriminations!

  • 6 ZXSpectrum48k March 22, 2019, 11:42 pm

    People forget that bond yields don’t obey a lognormal process. Zero is not a floor, as it is for stocks. The 10-year Gilt hit 1.00% today but the German 10y is closing at -0.02%, the Swiss 10y -0.48%. The Japanese 10-year bond is a -0.08% and hasn’t yielded above 2% for twenty years.

    Today the UK can issue for 50-years fixed at 1.37%. CPI has averaged 2-2.5% (and RPI 3.0-3.5%) over the two decades and higher before that. Instead the population votes for “austerity”. Why? It’s hardly unsustainable when, in all likelihood, the UK is being paid in real terms to borrow money at a fixed rate for half a century. We can’t still fear the ‘bond vigilantes’; they all died waiting for hyper-inflation that never came. It’s simply ideology. If we were issuing at 5% or 10%, it would might make economic sense but at 1.37% it’s bonkers not to run a big fiscal deficit.

  • 7 Norfolk March 23, 2019, 12:05 am

    @Ermine: She seems to have more lives than a cat and somehow none of the other horses in the nacker’s yard seem able to oust her, nor depressingly do erstwhile alternatives appear necessarily to offer hope. Just sayin. Seeing her comic profile lurching awkwardly on her daddy long legs like Mr Bean in today’s news made me think of John Crace’s excellent column in the Guardian, hence the Maybot label; it suits her otherworldly, unique locomotion perfectly.

    If you live long enough, you see everything, I never thought in my lifetime I’d see a worse UK premier than Cameron, but we barely had an ad-break in the brexwit sh*tshow before her contribution. It makes a sane person queasy imagining which one of her colleagues now drooling for the leadership, no matter how risky that could turn out, will lunge effectively when it comes to the traditional tory ritual of failure-regicide. None reassure that they have any empathy for ordinary people who alone will pay for the consequences of this Game of Thrones being played out by those in power now; because the only certainty we have at this point is that said ruling cabal sure as hell wont suffer.

  • 8 Ric March 23, 2019, 9:10 am

    I’ve noticed Doctors like to diagnose a disease before selecting a treatment. I feel it is a shame the same does not apply in other walks of life, such ass politics. Mr Camaron held a referendum without defining one of the options (and incidentally promptly resigned when it went wrong and he realised the mess the country was in, as did Mr Farage). Since then Mrs May’s only definition has bee “Brexit is Brexit”, which still means nothing to me. Mrs May also triggered Article 50 with no idea what to do next (and how could she know what to do if she did not have any definition of the referendum result). This weekend, we have six options, covering the full range. Is this progress?

    (Sorry, don;t reply, this was rhetorical. Have a peaceful weekend everyone.)

  • 9 The Investor March 23, 2019, 10:14 am

    Meanwhile the woman who originally posted the petition is getting death threats from our beloved defenders of democracy:

    Hi – am the person responsible for the Revoke Art 50 petition. Just needed to tell you that 1. am currently visiting Cyprus. and 2. last night I had three telephoned death threats. (!) Who wants Brexit so much that they are prepared to kill for it?


    I lost a large chunk of readers by de-cloaking as anti-Brexit, but I have to say I have no regrets.

  • 10 Simon March 23, 2019, 10:42 am

    This being the same person that said on social media (on Theresa May): “if I got hold of a gun, i’d shoot her point blank in the name of patriotism.” And, “this creature needs putting down.”

    Obviously death threats to anyone, for any reason, are abhorrent, especially over something so ridiculous as your political views. And of course her posts do not in any way excuse the vitriol she is being subjected to. However it does seem slightly hypocritical; “Who wants to remain so much that they are prepared to kill for it.”

    There are idiots in this country who voted to leave. There are idiots who voted to remain. To say that the actions of a few define the characteristics of the many I cannot agree with. The only thing this whole debacle proves is that the country has plenty of idiots.

  • 11 The Investor March 23, 2019, 10:58 am

    @Simon — Well that is shocking and obviously unacceptable. Agree with you on all counts.

  • 12 Xenobyte March 23, 2019, 1:25 pm

    @Investor: talking of marches and petitions with millions of signatures, elsewhere in Europe citizens are marching today against the Copyright Directive. Hope you are up to speed with Art 11 and 13. Monevator.com should avoid the ‘link tax’, but those snippets from other publications, hmmmm….

  • 13 Ben March 23, 2019, 2:20 pm

    Good luck on the march BTW.

  • 14 Matthew March 23, 2019, 2:24 pm

    I don’t know why we don’t have mortgage-backed securities (2008 style) in portfolios alongside fixed income, since mortgage backed has a different profile, ie not fixed income, but should hold value if interest rates rise, may even gain value if people flee fixed income. I suppose some could have cash in an offset mortgage to achieve a similar thing, and at higher yield

  • 15 Factor March 23, 2019, 2:44 pm

    @TI – “Hope to see some of you on the march”

    With you in spirit TI.

  • 16 The Details Man March 23, 2019, 2:57 pm

    I’m very sympathetic to the argument ZXSpectrum puts above. I was talking to somebody about this the other day.

    I’m a business valuer by trade and there are two ways to fund a business: debt or equity.

    It’s simplistic, but you can apply the same to a Government. Debt is the bonds it issues. Equity is the collective stake taxpayers hold. A Government can fund expansion by issuing bonds or raising taxes. What we’ve seen is a Government cutting down on issuing bonds and not increasing taxes. Ergo, taxpayers are getting reduced equity – a lower level of services.

    For me, this isn’t very sensible. Firstly, as ZX mentions, borrowing right now is very cheap for the UK. Secondly, we’ve cut back on growing UK plc after a recession – when really that’s the ideal time to start investing and increasing services. Thirdly, we’ve seen the cost of ‘equity’ is really high. There is very strong resistance against even the most marginal of tax rises (scrapping NIC 2 for example). And the costs of austerity were gravely underestimated. In short, our Government spurns lower cost funding and instead uses expensive funding. I suspect that can only be down to dogma.

  • 17 ermine March 23, 2019, 3:05 pm

    @Norfolk BoJo. Just sayin’. There are few positions on Earth that can’t get worse, and there are still a lot of vacancies in Hell according to Tusk, though candidates aren’t in short supply 😉

    @Matthew > why we don’t have mortgage-backed securities (2008 style) in portfolios

    I know the pace of change is picking up and all that, but it’s hopefully because not all the people who got burned the last time have retired or died yet. The trouble with MBS seems to be they have the transparency of lead several feet thick. Conversely your offset mortgage is a fine version of MBS, because presumably you know the mortgagor’s situation rather intimately, and if he turns out to be a deadbeat then you only have yourself to blame!

  • 18 MrOptimistic March 23, 2019, 5:13 pm

    You couldn’t make this brexit palaver up. Theresa May must be the least welcome dinner guest on the planet, and, she doesn’t know when to leave ( multiple pun there, applause accepted).Some good and entertaining links there, cheers.

  • 19 Learner March 24, 2019, 3:24 am

    40 year mortgages.. as if we need another reminder that residential property is too big to fail, or even too big to depreciate significantly. Rather we must keep inventing new ways to pump money into the system (help to buy) or lower servicing costs (longer terms). As someone who aspires to own a home one day I suppose it should be heartening to see such efforts made in my favour but it’s really not. Like our leaders’ rejection of the obvious route out of brexit-stalemate (a proper referendum), significantly lower home prices cannot be contemplated.

  • 20 Two shillings and sixpence March 24, 2019, 8:00 am

    Thanks for the links to some interesting articles.

  • 21 Neil Richardson March 24, 2019, 11:24 am

    I loved that OShaughnessy tweet; a timely reminder for us folk who are addicted to their portfolios….and Monevator.

  • 22 Mathmo March 24, 2019, 4:38 pm

    Thanks for the links this week, TI.

    My journey on bonds has been strongly influenced by these pages. At first I misunderstood the value of the asset class in the mix and chased yield like a Californian pension fund. Corporate bonds seemed great until the first equity blip when I realised the correlation. I dumped out of those and became a pure vgov holder until I developed a low yield nosebleed: surely this can’t go on we all declared, and I set about making more valuable mistakes.

    The crash is clearly coming, I declared, cashing out at 80bps and rushing into the welcoming arms of cash / Zopa.

    However, I realised that the lack of options inside the Sipp wrapper was hurting me. A short-lived experiment with ultrashort bonds to avoid exposure to the soon-to-be-rising yields revealed to me the liquidity risk: in the next equity blip, the spread on the ultra shorts opened up so wide I couldn’t fund an equity purchase. Gah. Lucky me having all these learning events!

    Finally I relented and slithered back into the discipline of global bonds – scared of hmg’s performance to rely on gilts but rooted here sufficiently to pay for the hedge. Alarming to buy six figures of any asset class that you feel certain is heading one way, but which you know is the disciplined allocation.

    Ah well – I reconciled myself with the idea that there were bigger mistakes to make / remake and at least this provided a little yield in the meantime on my counterweight.

    Somewhat relieved, then, to find agbp back over par this week. Is the market trying to reward my venture into discipline? Unlikely. Probably just lulling me into another learning opportunity.

  • 23 The Investor March 25, 2019, 2:13 pm

    @Mathmo — Hah, loved that summary. I personally think with low-yielding cash / government bonds you always have to remember the comparison with equities. When shares do well, you’ll double your money over 3-5 years. That’ll dwarf returns from bonds or cash, at least over the past 20 years or so. But when shares crash, it’s horrid. So keep 10-20% in high interest cash / government bonds, suck up the low returns, be prepared to lose 10-20% over a few bad years if you do go the bond route, but mostly (hopefully) watch your shares eventually make you rich. Bonds don’t make much sense in a plan without equities in the picture. With equities in the plan, they don’t cause half as much consternation. 🙂

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