But it is no simple task to make the basics of bonds interesting. And as Mr Glowrey moves into the chapters where he can draw on his experiences in the bond market, the book warms up. There are entertaining snippets; I particularly enjoyed the description of the gilt market in the mid-1980s where the government broker wore a large top hat – partly so that he would stand out on the crowded trading floor.
In the chapter dealing with the maths around bonds, the emphasis on the private investor is clear. When the professional investor looks at a bond, he or she focuses primarily on the gross redemption yield (aka yield to maturity) and how much more this is for a corporate than for a gilt. In contrast, for the private investor it is more appropriate to focus on the income yield adjusted for capital gain or loss. The book deals well with this.
Against that, the use of duration in portfolio management and its likely impact on a fund is largely overlooked. This is particularly important, given that much of the book focuses on structuring a bond portfolio as a “ladder” with maturities every year to reduce re-investment risk.
As a strategy, laddering is absolutely fine, but the author should make it clear that the investor has to buy to hold all the way through the portfolio’s lifetime, ignoring the market-to-market volatility the longer-duration bonds will produce for the fund.
This reservation aside, this is a useful reference book for investors who need well-written, simple explanations of the basic concepts surrounding bonds in the sterling market. I carried this book around with me for a couple of weeks, and found myself referring to it on a number of occasions to explain concepts in layman’s terms.
In one case, I successfully explained to a sales colleague how we trade breakeven inflation. In another – marginally less successful – instance, I attempted to explain to my mum why she needs to understand different types of bonds. And, indeed, what I do for a job.
Published by Harriman House