We are experiencing a real crash on the bond market. This collapse has produced far less overall news in the financial media than the fall in stock markets since the start of the year. However, what is happening to interest rates is spectacular following the actions of central banks to fight inflation. This crash is also an investment opportunity for the coming months. In this article, we explain what a bond is, why the bond market is collapsing, Marc Fiorentino’s opinion on the subject, and several investment tools to anticipate a rebound in bond yields.
Why do bonds fall?
A bond represents part of a loan issued by a company, a local authority or a state. In other words, it represents a debt. When an investor subscribes to a bond, he makes a loan to one of these entities at an interest rate and over a predetermined period, usually several years.
In return for this loan, he receives aannual remuneration, called coupon, at the agreed interest rate. This interest rate can be fixed or variable. Finally, at maturity, he recovers his original outlay if the issuer of the bond has not gone bankrupt.
How does the price of a bond develop? When rates rise, the value of the bond falls. And conversely, when rates fall, the value of the bond increases. In the event of interest rate increases, new bonds are issued with higher coupons than the old ones.
The value of old bonds de facto decrease, as investors will prefer to sell them to buy new bonds, more profitable. Conversely, when rates fall, the value of bonds that are already in circulation increases.
We talk about “interest rate risk” when an investor sells his bonds before their maturity and interest rates have risen since his initial investment. Therefore, he loses part of his investment.
DIn the rest of this article, we present two bond funds in detail. The first is dedicated to bonds issued by financial companies based in Europe. The second, more general and more diversified, targets the international obligations of companies and states.
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Marc Fiorentino’s opinion
In his Morning Zapping on September 27, Marc Fiorentino evoked the current bond crash. And with good reason, interest rates have been rising sharply for several months at the urging of central banks, which raise them to curb inflation. And as rates rise sharply, the value of the bonds collapses, up to -30% or even -40% for some of them.
In his newsletter, Marc especially mentions the most important long-term interest rates, those of 10-year government bonds, bond market benchmarks :
- United States: 3.88%. We were 1.33% less than a year ago
- France: 2.75%. We were at -0.05%
- Germany: 2.10 per cent. We were at -0.40%
- Italy: 4.70%. We were at 0.79%
The current situation is not abnormal, on the contrary, it corresponds to a return to normal. The truly anomalous situation was in recent years when interest rates were artificially kept at zero, or even in negative territory, where inflation and growth were low. In short, interest rates are currently adjusting to the real economic situation, causing a real bond crash.
As of now, investing in 10-year US debt yields about 4% per year. It is a relatively unexpected return, as the stock markets have been in free fall since the start of the year.
It is high time to invest again in bonds and this is the choice made by Marc Fiorentino and his strategic committee under the Best Rates Allocation Vie arbitration mandate. During the extraordinary investment committee meeting on Thursday 21 September, the decision to increase the allocation to the bond segment was actually made.
The ETF iShares Euro Govt. Bond 20 year target duration (IE00BSKRJX20) were also added to the various allocations to expose them to long European government bonds.
that Best rates Arbitration mandate Life grant allows you to delegate the administration of your life insurance to the experts at Meilleurtaux Placement. The strategic investment committee built around Marc Fiorentino administers your contract within the scope of this arbitration mandate.
You have nothing to do! Meilleurtaux Placement offers you to invest in aallocation managed by investment experts. A distribution built around the judgments that we share in our newsletters, with arbitration potentially every month to monitor the development of these judgments over time.
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Investing in a bond rebound
1. A fund for bonds of European financial institutions
The foundation was established in July 2009 Lazard Credit Fi SRI (FR0010752543) is mainly aimed at the bonds of European financial institutions using a socially responsible investment-type of management. The fund has been labeled SRI since 2020. Among the top lines in the portfolio, we find bonds from BNP Paribas, Crédit Suisse and Deutsche Bank in particular.
This investment medium is rated 4 out of 5 stars by MorningStar and 5 out of 5 by Quantalystwo independent financial media.
The foundation’s results*:
The department’s performance stands at 37.76%* over ten years, significantly higher than the investment category (European private sector bonds). However, over five years the fund had a performance of 1.47%* and -3.27%* over three years. Since January 1, 2022, it has been -11.33%* (-11.83%* over one year).
MorningStar rates support risk as a medium across all investment horizons, relative to its investment category. Its volatility over the last twelve months stands at 3.58% and 7.85% over three years. The fund manager has been at the helm since creation.
2. A more general fund
The bottom Carmignac Portfolio Global Bond A (LU0336083497) was established in December 2007 and is aimed at international obligations, both companies and states. It is a more generalist and better diversified fund than the previous one. Almost half of the bonds in the portfolio are those from developed countries, mainly in Europe and the United States. At the same time, around 20% of the bonds held are bonds from companies in developed or emerging countries.
In the top lines of the portfolio, we find American, German, French, Belgian and, to a lesser extent, South African government bonds.
This investment medium is rated 4 stars out of 5 by MorningStar and Quantalys.
The foundation’s results*:
The department’s performance stands at 31.56%* over ten years, significantly higher than the investment category (diversified global bonds). Over five years, the fund had a performance of 6.88%* and 1.29%* over three years. Since 1 January 2022, it has stood at -2.67%* (-1.84%* over one year).
MorningStar rates support such high risk across all investment horizons, relative to its investment category. Its volatility over the last twelve months stands at 3.35% and 5.02% over three years. The foundation’s two managers have been at the helm since 2021.
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How to invest under the best conditions?
The two above bond funds are available no entrance fee The Liberté Vie contract with the best price, life insurance at a very low cost, for better performance on your investments.
With Freedom Life’s best prices, you can invest without payment fees or arbitrage fees in specific themes and sectors of activity : luxury, health, technology, security, raw materials, industries, precious metals… and in all geographical areas, from the most classic to the most exotic : France, Germany, New Europe, Japan, Eurozone, USA, China, India, Taiwan, Switzerland, Singapore, Brazil, etc…
More than 680 supports* are available in the contract to boost your investments within the framework of free management, including 20 SCPIs, 111 Live Securities and Private Equity Funds to diversify your savings in real estate, the stock market and the unlisted. 132 SRI labeled funds are eligible for the best Liberté Vie rate.
Meilleurtaux Liberté Vie is also life insurance at very low cost, for better performance on your investments, the different life insurance costs:
- €0 entry and exit fees (except SCPI/FCPR).
- €0 fees on payments (excluding OPCI, SCI and SCPI).
- €0 handling fee.
- 0.5% administration fee on Unit-linked.
- All your online arbitrations are free.
A contract rich in units of account :
- A new generation Eurofund.
- More than 680 selected funds that pose a risk of capital loss to boost your investment
- You can invest in the real estate market through 20 SCPIs, 8 OPCIs and 6 SC/SCIs available in the contract.
- The option to subscribe to live securities, but also a selection of trackers/ETFs, equity supports or even FCPR.
- The minimum initial payment to subscribe to this contract is €500 (€100 per month for scheduled payments).
With Meilleurtaux Liberté Vie, you will of course benefit from the personal support of our Wealth Management Advisors.
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* Past results are not indicative of future results and are not constant over time. Investing in shares, bonds or UCITS presents a significant risk of capital loss and must be considered from a long-term perspective, representing a small part of a total inheritance. Unlike funds in euros, the value of these supports, which reflect the value of the underlying assets, is not guaranteed, but is subject to upward or downward fluctuations, especially depending on the development of the financial markets.
** Meilleurtaux Liberté Vie is an individual multi-support type of life insurance, distributed by Meilleurtaux Placement and insured by Spirica (100% subsidiary of Crédit Agricole Assurances), SA with a share capital of 231,044,641.08 euros, a company subject to the Insurance Act, RCS Paris No. 487 739 963, 16-18, boulevard de Vaugirard 75015 PARIS. The guarantees in this contract can be expressed in units of account, in shares of diversification provisions and in euros. For the part that is invested in account units and in shares of diversification provisions, the invested amounts are not guaranteed and are subject to upward or downward fluctuations depending in particular on developments in the financial markets.
The main characteristics of the Meilleurtaux Liberté Vie contract and its various investment options are described in the key information document and the specific information documents available at placement.meilleurtaux.com or on the insurer’s website https://www.spirica.fr.