2D·

Phase change in the portfolio: Individual stocks ⬇️ Bonds ⬆️

In recent weeks, I have been able to lower my entry prices for individual stocks here and there ( $HNR1 (+0,28 %)
$CNR (+0,37 %)
$NOVO B (-1,79 %)
$DTE (+1,06 %)
$VICI (+1 %)
$ADP (+0,36 %) ), but I still think the market as a whole is currently somewhat overvalued. I will therefore be using less of the variable portion of my savings rate to buy individual shares over the next few quarters.

The central banks are a little more reluctant to cut interest rates, so hopefully there will be good opportunities to buy bonds for a few more months, which I would like to finance with the cuts in the savings rate for individual shares.

This month I have already added to my French bonds and will continue to do so, as they are currently trading at historically low levels. Although interest rates are falling, the risk premium for French government bonds is rising due to the budget deficits, which naturally causes the price to fall. However, as I do not believe that the solvency of the state is seriously at risk, I am taking advantage of the low quotation to achieve a price return in addition to the coupon. During the negative interest rate phase, the bond quoted at over 230% at times.

04.11

FRANCE, REPUBLIC OF (GOVERNMENT) 4.0% 10/60

Comprado a 93,90 €

12 Comentarios

GiCi@GiCi

Interesting to know I am not the only one on bonds, somehow. A few questions here: I suppose you are not holding it to maturity, so are you betting on further rate cuts to sell? How and where are you investing the coupon? As you know, this is crucial to ensure internal rate of Return. Are you on a bond ladder?

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ynnxs@ynnxs

@GiCi i‘m not planning on holding the bonds until maturity. i use bonds as liquidity when the stock market crashes and for price gains rather than high coupon returns. so yes, i’m betting on further rate cuts. overall the european economy has not been not doing well in the past years (except for the large cap companies) and the outlook is not good. germany is in the 3rd year of a recession and also in france the economy growth is below the average coupon on their debt which means that the total debt is also growing and financing it gets harder for the french government. therefore the pressure on ECB, to set the interest rate below 2%, is getting higher especially because these two countries lead the european economy. i also expect some price gains if the market lowers the risk premium for french bonds as soon as the budget debate is over and steps towards decreasing debt are being made.
i save up all my dividends and coupons over the month and reinvest them into the best buying opportunity in my portfolio. some of the cashflow is being contributed towards a savings account with the current ECB interest rate, to stabilize cashflows and smooth out the reinvestment curve over the year.
i’m not on a bond ladder and instead mainly buy longterm bonds (+10 years) to maximize price gains because longer duration leverages interest rate changes. i have some midterm bonds (5-10 years) in my portfolio but these are highly speculative government bonds (turkey, romania) with a high coupon. these midterm bonds are not as sensitive to interest rate changes as longterm bonds so in this case the aim isn’t price gains but rather high cashflow :)

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GiCi@GiCi

@ynnxs , interesting setup! A few considerations: I don't think we will see a huge shift in yields for French bonds in the short.run, since the debt trajectory is not on track and there will be a compromise budget. Maybe the yield of OAT will be slightly lower than Italian 10-years BTP, but they will still move closely. In any case, I think your choice fits well with the strategy.
On midterm bonds, I see the point, but would avoid bonds that are not euro-denominated given the high uncertainty on geopolicy and currency risks. Is the Turkish bond denominated in USD? If you want a second-look, provide ISIN :)

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ynnxs@ynnxs

@GiCi i get your point on the french situation. that’s why i diversify within different regions, currencies and credit rating. besides france (as mentioned in the post) i also have a german ( DE0001135432 ), italian ( IT0005611741 ) and spanish ( ES0000012M93 ) bond. the turkish bond ( US900123AL40 ) is in USD. that’s where the risk comes from. the turkish debt is fine (25% GDP) but the Lira is inflating fast. they pay the coupon in USD so there is double currency risk from Lira to USD to EUR. but in my opinion the return is appropriate compared to the risk. USD to EUR rate has gone from 0,98 down to 0,85 and now back up to 0,87. if the ECB lowers the interest rates and the FED wants to slow down with interest rate cuts, EUR bonds go up in value because they have to compensate the old high coupon with price loss until maturity to achieve the lower return rate. at the same time, exchanging EUR to USD will become more attractive due to carry trade. cheap credit in EUR is converted to high yield USD bonds which creates a difference in interest. thereby USD rises in value, the currency cycle turns and my USD assets (including the turkish bonds) go up :)

edit: my stocks are very finance heavy. lower interest rates are probably one of the biggest threats to my portfolio. that’s why i added bonds as a negative correlated asset to decrease volatility and increase liquidity.

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GiCi@GiCi

@ynnxs mmmmm, I had a look. The European bonds are all long-temr bondds so I suppose that here the game is always on the long-run with fairly high coupon. Nothing to say here: most of the gain is given by fluctuations in ECB interest rate, so in a scenario of low inflation and slow growth, you can have opportunities for capital gain.
Turkish bond, well, well: here the bet is mainly on the exchange rate EUR/USD. Let us say that it all depends on the FED and ECB policy in 2026: my take is that in the short-run the exchange rate will be around 1,15 to 1,20. Above 1,20, the ECB will probably intervene, below 1,15 Trump will start screaming again for further rate cuts and indeed the US economy is slowing. So here I am not sure, you are around a net yield between 3,5% and 4%. Are you planning to keep it until the maturity?
In any case, nice plan, I like it!

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ynnxs@ynnxs

@GiCi thank you for your opinion on this topic! after the meeting in october the FED already said that they might have to slow a bit down with further interest rate cuts. this makes sense if you look at stock market boom of 2022-2024. this was driven by expectations for AI as well as the recovering from the low in april this year. at the same time the interest rates were high so it doesn’t make sense to invest a lot. this shows some overvaluation of the stock market that might come down a bit.
the yield to maturity currently lies between 3,1% (Germany) and 6,2% (Romania) with concentration around 4,3% (Spain, Italy, France). turkey is at 6,0%. i do not plan to keep it until maturity so the return is higher (turkey for instance has 11,88% coupon).

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GiCi@GiCi

@ynnxs the strategy overall Is good.

These are all gross yield, right? The net of the Turkish bond, if I bought It today, would be around 3,8%.
Then another question, my friend: why not investing the EMU bonds in and Euro ETF on 10+ years? Both accumulating and distributing could be good, average the credit risk and being similar resulta keeping the duration constant and the sensitivity tò interest rate intact.

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ynnxs@ynnxs

@GiCi what do you mean by net and gross return? the returns that i mentioned are based on the coupon and the price difference between the current quotation and 100%, divided by the remaining duration. the USD to EUR currency exchange is not included. the Lira to USD exchange rate has no effect.

i have short term bond etfs where all bonds mature in the same year. this offers a fixed interest rate for a short period of time. for long term bonds i want to decide how much weight is on which countries. i don’t need a smooth interest return curve because in my case, price gains from interest change sensitivity are the whole point of adding bonds.

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GiCi@GiCi

@ynnxs No, I simply mean before and after tax returns, those are the returns that goes intro your pocket.
If you want to decide single weighting, then ETFs are not the solution. How much of your portfolio is on the long-term bonds?

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ynnxs@ynnxs

@GiCi the returns are calculated without tax. they don’t exceed my tax allowance so gross is the same as net.

as mentioned i only want to decide about the weighting when it comes to longterm bonds because these are more volatile.
in my portfolio the short term etf just works as another form of liquidity besides overnight rate swap ETFs.
longterm bonds are supposed to make up 10-15% of my portfolio. nevertheless its currently at 20% because of the market phase change :)

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GiCi@GiCi

@ynnxs It makes sense and is a good diversifier. Thanks for sharing!

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