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Bonds: The tortoise versus the hare

20 May 2020 6:45 PM
Tags:
Bonds
SA bonds
bond market
Lockdown
COVID-19
Government bonds are considered to be the most secure form of investment in South Africa.

Lots of investors are nowadays afraid of putting their money in shares, particularly local shares.

But bonds are cheap and safe - and the yields are high.

The tortoise versus the hare story always fascinated me. Normally shares are like the hare where they tend to give you very good returns over time but like the hare they tend to be a little bit unreliable. And the tortoise tends to be slow and steady and gets you there....

Actually what's happened over time is our bonds in SA which as you mentioned are the boring kind of fixed deposits in a way, have tended to give us very good returns.

But now given what's happened in markets, our tortoise is super-charged and is lined up to give us similar returns to equity...

Philip Bradford, portfolio manager - Sasfin Asset Managers

If interest rates get down to three per cent I can still get government bonds today at over 11 per cent - so that is currently eight percent higher than I am getting on the repo rate and potentially nine per cent if we get cut tomorrow.

A bond is like a fixed deposit.

So if I go and buy a ten-year bond at nine per cent I can get nine per cent a year for the next ten years.

Where shares, a share might have a dividend yield of three per cent a year and the bond is giving me nine per cent a year.

The big difference with a bond though is the capital is guaranteed and the income is guaranteed. It's like a fixed deposit. I know what my returns are going to be - the question I'm going to ask myself though, is it enough?

Philip Bradford - Sasfin Asset Managers

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20 May 2020 6:45 PM
Tags:
Bonds
SA bonds
bond market
Lockdown
COVID-19

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