Irish Government Bonds for the retail punter

[Duke of Marmalade]

I think I have found a better Govie. The 0.20% Treasury Bond 2027 is priced at 90.88. It matures on May 15th 2027 so it is a 4 year bond, a preferrable term, and precisely comparable with the 4 year National Solidarity Bond. The NSB pays 2% or 0.50% AER. The TB pays 2.08% AER for a €100k investment and 2.34% AER for a €500k investment (using Goodbody charges and assuming subject to 40% tax and 8% USC on the coupons.
A downside is that if interest rates go up you can encash the NSB and reinvest, whereas the 4 year yield on the TB is locked in (no point in encashing and reinvesting). If 3 year Savings Certs where increased from 1% to c. 8% in say 1 year's time then encashing the NSB and reinvesting in the SC would give the same return as the TB.

 

[Duke of Marmalade]

From Basilbrush: I asked, and the fees for execution-only Irish government bond purchases through Goodbody are apparently 0.35% (at least for a fairly large purchase), plus the annual fee of €246 (including VAT).

I have checked with Goodbody and they are quoting 0.75% on first €50k and 0.5% on balance.

 

[basilbrush]

I should probably have left out the "fairly" in "a fairly large purchase". For the amount I asked about (€1m), they just said the fee would be 0.35%.

 

[Marc]

That's interesting although we don't offer an execution only service, our dealing charges are only 0.20% and 0.25% custody and for non-EU ETFs our clients only pay 0.05% with a minimum fee of €40,

 

[Duke of Marmalade]

I should probably have left out the "fairly" in "a fairly large purchase". For the amount I asked about (€1m), they just said the fee would be 0.35%.

That is interesting. I asked for €500k (just asking) and was referred to their standard schedule - which is 0.75% on first 50k and 0.5% on balance.

 

[FintanJ]

why only referring to goodbodys? Can Davy or other Irish broker be used?

 

[Scoobydoobydoo]

They are up on degiro...not all of them mind you. Just search for "Irland" without the e. I can't recall if I needed to change some settings to enable viewing/purchasing of bonds

 

[Duke of Marmalade]

If I buy a bond through De Giro do I become a registered owner or is it held on my behalf by De Giro?

 

[jpd]

You are the beneficial owner - just as buying shares through Degiro or indeed any broker

 

[Duke of Marmalade]

You are the beneficial owner - just as buying shares through Degiro or indeed any broker

With GoodBody I have the choice of being the registered owner of the bond or having it in a GoodBody nominee account. This is what Investopedia says of nominee accounts.

An investor's shares are legally owned by a stockbroker's non-trading subsidiary or nominee company. The investor is the stock's beneficial owner and has rights over the shares.

Having lived through the GFC I am extremely nervous of trusting any financial services player and there does seem to be some element of trust needed in De Giro. I also note that De Giro reserve the right to lend stocks in its nominee accounts. I will never be an active trader so super low trading costs are not a huge requirement. If I invest in an Irish Government Bond I want to legally and beneficially own the asset.

 

[Roro999]

I think I have found a better Govie. The 0.20% Treasury Bond 2027 is priced at 90.88. It matures on May 15th 2027 so it is a 4 year bond, a preferrable term, and precisely comparable with the 4 year National Solidarity Bond. The NSB pays 2% or 0.50% AER. The TB pays 2.08% AER for a €100k investment and 2.34% AER for a €500k investment (using Goodbody charges and assuming subject to 40% tax and 8% USC on the coupons.
A downside is that if interest rates go up you can encash the NSB and reinvest, whereas the 4 year yield on the TB is locked in (no point in encashing and reinvesting). If 3 year Savings Certs where increased from 1% to c. 8% in say 1 year's time then encashing the NSB and reinvesting in the SC would give the same return as the TB.
View attachment 7429

So what would be the guaranteed return if investing €100k in money terms in a 4 year TB ?

 

[Duke of Marmalade]

So what would be the guaranteed return if investing €100k in money terms in a 4 year TB ?

 

[ashambles]

View attachment 7444

do you get hit by the commission twice - way in and way out - or is that factored in? The usual fee at the moment from Goodbody is 123e - do they charge 246e if you want to buy bonds?

 

[Roro999]

View attachment 7444

Thanks very much. Is the tax rate always 40% ? I am retired and all income is taxed at 20% currently.

 

[Duke of Marmalade]

do you get hit by the commission twice - way in and way out - or is that factored in? The usual fee at the moment from Goodbody is 123e - do they charge 246e if you want to buy bonds?

I have assumed Held to Maturity. Earlier sale would involve further commission at the same rates. 200 + VAT p.a. was what was sent to me as their fees.

 

[Duke of Marmalade]

Thanks very much. Is the tax rate always 40% ? I am retired and all income is taxed at 20% currently.

I attach the spreadsheet which you can adjust to your own circumstances. The gain on maturity is a tax free capital gain - that's the magic ingredient just like state savings. The 0.20% p.a. interest paid along the way is taxable as income. Your combined tax, USC and PRSI rate might be nearer to 24%, but it won't make much difference as the interest rate is so low.

 

[Protocol]

View attachment 7444

Yes.

There is no CGT on Irish Govt debt, that is the main reason why they are attractive when available sub-par.

If you buy the bond at 85, and the maturity is 100 par, there is no CGT to pay.

I am tempted, especially if they are on DeGiro.


PS the mentions of 500k and 1m on this thread are interesting..................

 

[ashambles]

I have assumed Held to Maturity. Earlier sale would involve further commission at the same rates. 200 + VAT p.a. was what was sent to me as their fees.

Thanks, makes sense - not used to anything except shares and funds so didn't even think about bond maturity.

 

[Roro999]

Can anyone confirm if the 4 year TB referred to above by the Duke is available through Degiro ?

 

[Duke of Marmalade]

Thanks, makes sense - not used to anything except shares and funds so didn't even think about bond maturity.

I am more used to savings certs and bonds and with these you really only about maturity although I have just encashed all our joint bonds and certs following the recent review which indicates that NTMA have abandoned their traditional approach of giving very competitive rates.