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Model Portfolio: 2 June 2009
Model Portfolio : 2 June 2009
The general tone for corporate bonds remains firm, with investor confidence returning both to the asset class, and financial markets in general, as evidenced by the robust performance seen in the equity markets.
This month has seen mixed results for the model portfolio, but the bottom line is up on balance. We have taken a knock on the news from Bradford & Bingley that payment of the PIBS coupon is suspended until further notice. Our chosen course of action is to hold on; the valuation of the position is very low and we note that the deferred coupon is cumulative. We will see what comes out of the winding up process in due course, bearing in mind that the company has stated its intention to pay creditors in the business plan released back in March. You can download this document by clicking here.
Other holdings are doing quite well - most notably the retail sector which is seeing a strong bid. Some of these holdings are poking their nose over par and profit taking is now a possibility in the Marks & Spencer, Kingfisher and Next bonds.
We also note that our BT bonds have had a coupon step-up; now boosting an 8.5% annual payment. The coupon here is linked to the credit rating and with BT now floundering down in the BBB area, the coupon has been ratcheted up half a percent.
Finally, we have added a £7,000 holding in the undated War Loan 3.5% Gilt. Long dated gilts have been selling off over the past few months, no doubt as a reflection of the large and growing PSBR that Mr Brown has saddled us all with. However, the yield on this bond is becoming tempting at 4.8% and there is a good possibility of a bounce from the bottom of the long term range. The position is more of a trade than a long-term investment. We will see how it goes over the summer.