International Offshore Bonds
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Written by tolumi
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Friday, 05 December 2008 10:51 |
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International Offshore Bonds With every fall in the bank rate, the attractions of the international bond market get bigger. When the Fed cut the US bank rate by 0.5 per cent in late December, the markets responded with an almost-instant drop of 0.35 per cent in the bond yield - which is another way of saying that bond prices rose sharply around the world. Indeed, the average ten-year bond investor saw the capital value of his investment rise by around 7 per cent in a single day (because typical yields before the yield cut were around the 5 per cent mark): the only reason that bond yields didn’t drop by the whole 0.5 per cent, as with the bank rate, was that investors were also having to take into account the beneficial effects that the rate cut would have on their equity portfolios, which were also competing with bonds. International Offshore Bonds - Equities Win Hands Down If you’re confused by all this, all you really need to remember is that bonds are continually forced to compete with equities and with bank deposits - and that, under normal circumstances, equities win hands down. The time when bonds come into their own is when people are feeling fearful about equities - because owning a bond gives you the indestructible knowledge that you’ve locked yourself into a guaranteed rate of interest (the bid yield) until the day the bond eventually expires. That thought counts for a lot when you’re feeling unsure of yourself. International Offshore Bonds - Enough Evidence But oddly, there isn’t enough evidence yet that investors are turning to bonds, either in the US or elsewhere. Indeed, bond yields have actually risen fractionally since December, even though the equity markets have been stalled. That’s a puzzle which we don’t have all the answers to at the moment, but it seems that US investors are holding back because they still want to believe in the equity revival. They might be right, they might be wrong; maybe it’s better to wait on events for a while. But, if there’s the slightest indication that the US is getting into real trouble this year, getting some of your money into bonds as soon as possible might turn out to be one of your better investment decisions. 
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Last Updated on Tuesday, 06 January 2009 14:15 |
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