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Model Portfolio: 28 January 2009
Model Portfolio : 28 January 2009
The bond market has been a busy place over the last month or so. Short dated bonds have remained in demand, bolstered by low interest rates whilst the longer-dated end of the curve has sold off, triggered by investor fears of long-term inflation and supply. Against this "macro" background, spreads on corporate bonds have generally narrowed, although some individual names continue to deteriorate.
Our last portfolio review, published before Christmas, saw a bottom line figure of £94,306. This month’s figure shows a respectable improvement with a gain to £96,477, reflecting the general rally in corporate bonds from the October 2008 lows.
Recent changes include a decision to reduce our holding in the Segro 5.5% June 2018 (see chart, right). This bond has noticeably failed to join in the recovery seen in other credits and with the equity breaking to new lows below the £2 mark , we decide to moderate our exposure as a precautionary measure. We reduce our position to 5,000 nominal.
We are also concerned by our position in the subordinated (Upper Tier II) Citigroup bonds. The price of these has broken to new lows, and with 10,000 nominal in our portfolio, we will be monitoring the situation carefully.
Cash levels have increased in the portfolio, a consequence of the partial liquidation shown above and the maturity of the Alliance and Leicester 4.25% Dec 2008 bond. We now have over £20,000 to put to work and will look to roll this into the market over the next few weeks, perhaps taking advantage off the sell-off in the long-dated end of the curve to lock in some decent yields.