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Model Portfolio: 6 January 2010
Model Portfolio : 6 January 2010
The last few weeks of 2009 saw the long end of the Gilt market sell off, weighed down by negative sentiment on the prospects for the UK’s public sector finances and the prognosis for the country’s triple-A credit rating. Against this "push" was also a "pull" from confident equity market, which saw the FTSE100 break above the resistance at 5,400 that had held the market back since November.
Corporate bonds have tracked the general price-shift seen across the gilt curve, but retain a better "tone", with brokers reporting more buyers than sellers and a general shortage of supply in the secondary market. Indeed, several of our holdings, particularly in short and medium-dated corps, are up on the month.
Our cash position has increased over the last month to over £12,000. We have taken a couple of profits on bonds that had performed strongly and marched up to levels well over par. We also have decided to sell our small holding in the Nationwide PIB, reasoning that on a 7.4% running yield, the risk-reward ratio of this instrument is not that attractive. The move also reduces the overall duration of our portfolio.
Going forward, we may well see a further sell-off in the Gilt market over the next month or so, but bear in mind that bonds are not quite like equities - they have redemption dates. With this in mind, we will be using our reinvestment cash flows from coupons and redemptions to buy more corporate bonds, hopefully locking in some decent yields. With cash in our pockets, this would be a desirable scenario for us - we’ll see what happens.