Bull run in Bonds may be ending

Brad Waring, account executive, James Brearley & Sons
Brad Waring, account executive, James Brearley & Sons
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Investors have recently had the chance to take part in the largest Corporate Bond issue ever, by the well known technology company Apple.

The issue was a way for the company to avoid having to repatriate revenue earned in non-US markets. The money raised through issuing the bonds is enabling the company to return a good part of the cash raised in a tax efficient way to shareholders.

The process was enabled by a quirk in the US tax law but at the same time was aided by investors’ seemingly limitless demand for Corporate Bonds.

Bonds, be they issued by corporations or governments, can borrow money at a modest cost by almost any historic measure.

UK investors over the last few years have been willing to accept around a two per cent return on the benchmarked 10 year Gilt-edged stock.

This level may seem attractive when compared to the interest offered on bank accounts but does not give holders much return for being willing to commit their money for up for 10 years.

Many commentators believe that the bull run in Bonds we have seen in recent years could be nearing an end, with a resulting drop in capital values. Others note that bond prices are being supported by Quantitative Easing carried out by many of the Central Banks. Further, if there was to be a sudden global economic slow down, the current strong cash flow of many Corporate Bond issuers could suffer, along with their ability to repay their corporate debt obligations. At present investors are prepared to accept these risks but history suggests that sentiment can change quickly.

Investing in stockmarket based investments may not be right for all investors. You should consider carefully and/or seek professional guidance before investing.

Call James Brearley & Sons on (01253) 831250.

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