Author Topic: Europeans, what bond are you holding and why?  (Read 4272 times)

alwaysonit

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Europeans, what bond are you holding and why?
« on: September 28, 2014, 03:49:14 PM »
What bonds are the most popular and tax efficient among Europeans?

Take a high yield one from your home country? Take a safe but low yield German bond? International?

daverobev

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Re: Europeans, what bond are you holding and why?
« Reply #1 on: September 28, 2014, 06:04:29 PM »
I've never read anything other than use your country's own bonds. As inflation changes in your country, so does your buying power, and hence the price of bonds, so it should all hang together.

DaKini

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Re: Europeans, what bond are you holding and why?
« Reply #2 on: September 29, 2014, 01:14:08 AM »
Currently i hold no bonds at all.
My IPS says to hold bonds for the secure part of my porfolio, thus i would want safe but low yield german bonds. Currently i can achieve more yield than that with less risk (zero-volatility and zero transaction cost) using CDs and "Tagesgeld" so this is the better option.

The option of using some "EURO aggreagte bond ETF" would kind of mirror a nonexistent EURO-Bond and would have a higher yield. However this incurs taking the risk of the lesser rated european countries.
If i want to take on more risk, i thus prefer to add to my equities portfolio.

alwaysonit

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Re: Europeans, what bond are you holding and why?
« Reply #3 on: October 03, 2014, 02:02:13 PM »
Can somebody with no German ties open a Tagesgeld?
What sort of rate are you being paid and is the deposit insurance 100,000 per customer per institution?

I've been googling it but most results are in German which I don't understand.

MrMonkeyMustache

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Re: Europeans, what bond are you holding and why?
« Reply #4 on: October 04, 2014, 02:21:06 AM »
I've never read anything other than use your country's own bonds. As inflation changes in your country, so does your buying power, and hence the price of bonds, so it should all hang together.
Well this is clearly not the case in Europe, because we have a common currency. If I'm worried about inflation it does not matter if I buy German or Italian bonds. I personally just use an index fund that is spread out over the euro-countries. Can't figure out why I would want to do anything else.

daverobev

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Re: Europeans, what bond are you holding and why?
« Reply #5 on: October 05, 2014, 03:35:53 PM »
I've never read anything other than use your country's own bonds. As inflation changes in your country, so does your buying power, and hence the price of bonds, so it should all hang together.
Well this is clearly not the case in Europe, because we have a common currency. If I'm worried about inflation it does not matter if I buy German or Italian bonds. I personally just use an index fund that is spread out over the euro-countries. Can't figure out why I would want to do anything else.

In the Eurozone, not Europe ;)

Thing is, if you are going to retire in country X, you want that country's bonds. Because that country's bonds will reflect inflation best in that country, and that is why you are buying bonds - right?

If you live in Italy but buy cap weighted Eurozone bond funds, the returns will mirror the progression of the Eurozone, not that of Italy.

Whatever works for you, of course.

MrMonkeyMustache

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Re: Europeans, what bond are you holding and why?
« Reply #6 on: October 06, 2014, 01:38:46 AM »
I've never read anything other than use your country's own bonds. As inflation changes in your country, so does your buying power, and hence the price of bonds, so it should all hang together.
Well this is clearly not the case in Europe, because we have a common currency. If I'm worried about inflation it does not matter if I buy German or Italian bonds. I personally just use an index fund that is spread out over the euro-countries. Can't figure out why I would want to do anything else.

In the Eurozone, not Europe ;)

Thing is, if you are going to retire in country X, you want that country's bonds. Because that country's bonds will reflect inflation best in that country, and that is why you are buying bonds - right?

If you live in Italy but buy cap weighted Eurozone bond funds, the returns will mirror the progression of the Eurozone, not that of Italy.

Whatever works for you, of course.
I don't think this is correct. The rates of bonds mirror the general inflation in the eurozone (i.e. the change of value of the currency), and the risk of default of the country. It is correct that the prices and wages can change at different rates in different countries which leads to different cost of living. However, I don't think the projected rise in cost of living (not accounted for by the inflation of the currency) is in any way mirrored in the bond rates, and here is why:

Assume you have two countries A and B with the same currency and the same risk of default. If it is expected that the prices are going to rise more in A than B, this can not be reflected in higher paid interest for holding the bonds of country A. They use the same currency, so if the interest rates would differ in favor of A, everyone in both country A and B would by the bond of country A instead of the one issued by B, because they get higher interest with the same risk of default.  So anyone retiring in country B should clearly not buy bonds issued by B. Actually not a single sane person should by bonds issued by B.

The inflation target is set by the ECB and the national governments does not have anything to do with it as they have no independent monetary policy. Would it make sense to pay different interest rates on bonds issued by different states in the USA because of different inflation rates, when they are all issued in the same currency?

JoanOfSnark

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Re: Europeans, what bond are you holding and why?
« Reply #7 on: October 06, 2014, 05:45:37 AM »
I personally just use an index fund that is spread out over the euro-countries. Can't figure out why I would want to do anything else.

would you care to clarify perhaps? I'm trying to figure out what index-fund options are out there for the Eurozone, since pretty much everything I've read about is US-based.

MrMonkeyMustache

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Re: Europeans, what bond are you holding and why?
« Reply #8 on: October 06, 2014, 07:34:13 AM »
I personally just use an index fund that is spread out over the euro-countries. Can't figure out why I would want to do anything else.

would you care to clarify perhaps? I'm trying to figure out what index-fund options are out there for the Eurozone, since pretty much everything I've read about is US-based.
Sure. I use a normal index fund (not ETF) from Seligson & Co (a Finnish company, www.seligson.fi). It does not have that much information in English, but:

"Euro Bond Fund is a bond index fund following the EFFAS Bond Indices Euro Govt All index."

So you could try to Google that index for more information, since I don't know about ETF-possibilities.

I know ETF:s have lower expense ratios (the fund I am using has en expense ratio of 0.28% in 2013), but I an currently making frequent smaller purchases, so this is a good solution for me at present time. Might switch when my stash grows larger.

alwaysonit

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Re: Europeans, what bond are you holding and why?
« Reply #9 on: November 10, 2014, 04:50:47 PM »
For every EUR bond fund I've found, the yield (YTM less TER) is 1% or less on all of them.

Looking at Irish banks (I'm Irish), they pay about 2% and are government insured up to 100,000.
Is leaving fixed income in the banks the way forward at the current climate?

alwaysonit

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Re: Europeans, what bond are you holding and why?
« Reply #10 on: April 02, 2015, 05:35:03 AM »
Of the 240,000 that I want to hold in safe investments, currently 147,000 is earning 2.3% tax free and guaranteed in Irish banks which I don't think I can beat, although feel free to prove me wrong.

The other 93,000 is earning 1.05% per annum, can I get a better return by investing in any European bonds?