Afternoon all,
I'm holding quite a bit in cash at the moment and don't expect to do any buying for a while yet. I'd like some exposure to short term [1-3 months] treasury bonds, just for the yield but unsure how best to do this. Any suggestions would be welcome, I have cash inside and out of an ISA.
Regards,
Ian
A good way to do this would be via an ETF. They offer greater liquidity, diversification, are actively managed and cheaper than funds / ITs. Many bond ETFs are designed for income-seeking investors, with some providing a monthly payout.
Here an some examples of Bond ETFs on LSE:
iShares $ Treasury Bd 1-3yr UCITS ETF USD Dist (LON:IBTG)
PIMCO US Dollar Short Maturity UCITS ETF USD (LON:MIST)
Xtrackers II Eurozone Government Bond UCITS ETF 1C (LON:XGLB)
Lyxor UK Government Bond 0-5Y (DR) UCITS ETF D (LON:GIL5)
The ETFs above are not necessarily short term 1 -3 months government bonds, but as they are tradable ETFs, you easily enter and exit, whilst collecting yield, in the short term (if that's what you're after). If this is a mainstay in your portfolio, you may want to consider diversifying across different geographies / governments to reduce geo-political risk in your portfolio.
Of course, DYOR (not investment advice).
XTR: I use the ETF called SPDR Bloomberg 1-3 Month T-Bill ETF (PCQ:BIL) for this very same purpose. It's a blend of 1 to 3 month bills.
Note: It pays out monthly.
I use HL Active savings for any spare cash that isn't invested - I am getting about 3.5% I think on my current holding with limited access - I think its up to 6 or 8 withdrawals a year.
The aim is to build up next years ISA holding so I can invest from the start of the tax year. I tend not to worry about SIPP/ISA cash as most of the time I am fully invested.
HL Active savings looks good, I wasn't aware of this despite having an ISA with HL. The 6-8 withdrawal limit isn't too restrictive either. I have a couple of bank accounts that pay a similar yield to this already but good to know about all the same.
Still working through the ETF options and hadn't realised how much choice there is. The SPDR Bloomberg 1-3 Month T-Bill ETF is exactly what I had mind although will have to consider FX costs.
Some really good options here, thanks all for sharing the knowledge.
You could consider JPM GBP Ultra-Short Income UCITS ETF - GBP (dist) (LON:JGST) in an ISA, it is paying over 3% interest now. Price is stable.
I hold.
You can also look at preference shares, some are paying around 6%, I have Lloyds Banking (LON:LLPC) and Ecclesiastical Insurance Office (LON:ELLA).
Thanks Rusty, do you know if JPM GBP Ultra-Short Income UCITS ETF - GBP (dist) pays interest monthly?
XRT: I forgot to say, IBKR are paying 3.913% right now for holding cash with them (goes into the money markets). You can get 4.58% on USDs:
XRT: Someone just told me that SPDR Bloomberg 1-3Y U.S. Treas Bond UCITS ETF Dist (LON:TRS3) is a UK listed equivalent of SPDR Bloomberg 1-3 Month T-Bill ETF (PCQ:BIL) from the same fund manager - I haven't confirmed this myself.
I’m using Lyxor Smart Overnight Return - IE (LON:CSH2) it’s an accumulation fund that’s currently returning over 4%. Basically it pays SONIA rate every day so you never see a drop in price over 5 days
Hi Alpha, the charts look completely different so not sure how equivalent they are, I'm at work at the moment so will take a closer look later.
Need to be aware that the ETF's often carry a counter party risk and have no backing eg CSH2 is a synthetic unfunded swap arrangement.
In comparison balances at Interactive Brokers have the full Fed deposit guarantee behind them. HL the UK scheme etc.
That's a really good point, I use ETFs more and more these days particularly for commodities [ETC]. Synthetic precious metals ETFs have low costs, no vaulting fees etc but as you say, counter party risk.
Bond ETFs are good, but the interest is taxable as interest. If you pay tax on interest, you will be better off buying a low coupon short term gilt directly. For example the TN24 gilt expires in January 2024 and currently trades at 97.23p and pays a 1/8% coupon. The coupon is taxable but the 2.77p capital gain is not taxable. Being a gilt, it is one of the safest investments. I buy gilts via Barclays stockbrokers and although they appear to have a large spread, the price obtained is very close to the mid price.
Yes, gilts can be held in an ISA, but if outside an ISA, just buy a low coupon Gilt to avoid paying large amounts of income tax. If inside an ISA, you may be better off buying a fund.
