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Model Portfolio: 2 June 2008

The month has seen some fairly sharp falls in the price of government bonds as inflationary fears lower the hope for interest rate cuts. We have now given back much of our gains on our Gilt and EIB holdings, however the effect on the corporate and bank sector bonds has been mixed, with the downward shift in the yield curve offset by some recovery in selective credits

No new holding for the Fixed Income Investor bond portfolio this month; we remain fully invested after using up our remaining cash at the start of May. The month has seen some fairly sharp falls in the price of government bonds as inflationary fears lower the hope for interest rate cuts. We have now given back much of our gains on our Gilt and EIB holdings, however the effect on the corporate and bank sector bonds has been mixed, with the downward shift in the yield curve offset by some recovery in selective credits.

Regarding the P&L,  I am embarrassed to report that last month’s valuation was overstated, with the £5,000 position in the Portman(Nationwide) PIBS overvalued as a £10,000 position. This means that the adjusted valuation last month was, in fact £104,470. Compared to this, at today’s figure of £105,084, we are roughly flat on the month.

One area of interest is the B&B PIBS. The newsflow over the weekend was a further blow for the shareholders, but bear in mind that whilst boosting the capital of the bank dilutes the shareholders, it is arguably good news for those slightly higher up the balance sheet. Our holding is slightly off the peak seen in the low 130’s a couple of weeks ago, but we are still in profit here.   

Next month see the portfolio’s first redemption, the £10,000 holding in the Vodafone 6.25% July 2008. The proceeds will be the nominal plus the coupons, a total of £10,625, and this will push liquidity back into the portfolio. We will look for a new holding, possibly an ’09 maturity in order to keep the "rungs" on our portfolio ladder evenly spaced.

Model Portfolio

Date of Purchase

Issue

Nominal

Purchase Price

Current Price

Value  

P&L           

Accrued

16 Jan 2007

Vodafone 6.25% 10 July 2008

10,000

 100.42

 100

10,000

 

 517

30 Jan 2007

Kingfisher 5.625% 15 Dec 2014

10,000

  95.24

 82.4

8,240

 

 222

15 Feb 2007

Alliance & Leicester 4.25% December 2008

10,000

  97.46

 98.25

9,825

 

 150

7 Mar 2007

Segro 5.5% 20 June 2018

10,000

  97.35

 85.3

8,530

 

 485

28 Mar 2007

EIB 4.75% 06 June 2012

10,000

  96.82

 97.23

9,723

 

 437

18 April 2007

Merrill Lynch 5.125% 24 Sept 2010

10,000

  97.66

 94.45

9,445

 

 317

18 July 2007

Treasury (Gilt) 4.25% 7 March 2011

10,000

  95.20

 98.05

9,805

 

 69

19 Aug 2007

Portman (Nationwide) 6.25% PIBS

 5,000

  97.50

 90

4,500

 

 13
9th Jan 2008 Marks & Spencer 5.625% March 2014 10,000   95.82  91.38 9,138  69
10th April 2008 Bradford and Bingley 11.625 PIBS 10,000  112.00  124 12,400  348
1st May 2008 Citigroup 5.125% Dec 2018 10,000  85.30 83.70 8,370  207
Bond sub total            

 

 

 

Category Sum            Notes
Securities

£99,976

Valuation of current holdings
Accrued

£3,303

Interest accrual on above 
Cash

£1,805

Including interest & coupons received. 
     
Total

£105,084

 

Mark Glowrey

Notes: Dealing costs are £15 per trade, and this is factored into the total valuation of the portfolio. There is no stamp duty payable on bonds, although this may be applied to preference shares and other classes of security. Valuations are based on bid-side levels.