NZ Government Bonds

[Alan3285]

What actually scared me the most was that I went to two reputable financial planning organisations (no names, no pack drill), and they wanted to put her into places which aren't there any more. I value their suggestions occasionally, and she would have seen a 50 - 75% capital loss has we followed their advice.

Unfortunately, doesn't surprise me.

The portfolio you outlined looks pretty solid to me - unless the NZ Govt goes belly up, in which case we are all in it deep!

Alan.

[ENP]

Ok thanks guys that explains heaps. One last question I've asked a few times but haven't got a straight answer to...

How do you buy the government and corporate bonds when they first come out as opposed to buying later on, on the NZDX. Thanks once again.

ENP.

[Alan3285]

Hi ENP,

I don't know, but it would seem likely to me that the govt would only sell them directly to something like a 'registered' person.

Perhaps you have to be big enough (capital adequacy etc etc) to get in on the auctions, since they wouldn't want to be dealing with hundreds or thousands of small investors I guess.

To be honest, this is the sort of thing that is likely to change in the 'near' future with them being done online, and if you want to bid, you'll probably have to pre-deposit funds to cover whatever bids you want to make.

'Near' being entirely undefined!

Alan.

[ENP]

So you are better to just buy government bonds and corporate bonds on the NZDX a few days after they come out?

Also is there any books which explain government/corporate bonds really well?

[Alan3285]

So you are better to just buy government bonds and corporate bonds on the NZDX a few days after they come out?

Also is there any books which explain government/corporate bonds really well?

Well, bearing in mind that I did say I wasn't positive, I don't think you have any choice but to buy them on market.

No reason to exclude bonds that have been out for some time though - you should buy what makes sense for your portfolio, and that might be a 9.5 year old, 10 year bond, with six months to run.


No idea about books. What do you want to know? Bonds are pretty simple really - you are lending money to the government, they pay you interest, and you get the loan repaid at maturity (unless the government defaults!)

Alan.

[ENP]

So there's no real strategy to it. It's just like a term deposit, but from the government and companies instead of banks. But you can sell them and still recieve the interest, unlike when you cancel a term deposit.

Mainly I'm wanting to learn more about preference/perpetual shares, I'm fairly clued up now on the other types but not 100% sure how these work.

[ENP]

https://www.directbroking.co.nz/Dire...ic/issues.aspx

So when ever a new bond issue is done by corporates or the government it will come up here?

[ENP]

Also with these perpetual/prefernece shares... http://www.interest.co.nz/moneymarket.asp take Rabobank AA- Perpetual $10,000 9.48% 0.8140 for example. Would the 9.48% take the initial 1.00 buy price or the new 0.8140 buy price. i.e. if I bought them today, would I get a 9.48% yield or a 11.65% yield? (9.48/0.8140)

Thanks.

[Alan3285]

Also with these perpetual/prefernece shares... http://www.interest.co.nz/moneymarket.asp take Rabobank AA- Perpetual $10,000 9.48% 0.8140 for example. Would the 9.48% take the initial 1.00 buy price or the new 0.8140 buy price. i.e. if I bought them today, would I get a 9.48% yield or a 11.65% yield? (9.48/0.8140)

Thanks.

The quoted yield in the name of the bond is the nominal yield.

The actual yield is what you would see on the trading board (buy / sell prices).


I did a quick look, so maybe these figures are wrong, but I couldn't see either of your numbers:

Right now I think you can buy RBOHA for $81.20 per $100 nominal.

I believe the nominal rate on those is 4.123%.

If those numbers are right (and do check for yourself!) then the actual yield is just over 5%.

We might be looking at different securities of course, but the above example calculation method should work for any perpetuals.

As we discussed above, one thing to remember though is that the yield is not fixed if a perpetual has an interest rate reset mechanism.


HTH,

Alan.

[ENP]

As we discussed above, one thing to remember though is that the yield is not fixed if a perpetual has an interest rate reset mechanism.

How do you find out if it does or not?