index linked treasury stock

jennessa

if i buy index linked treasury stock 1 1/4 percent 2017 standing now at £104, will i get more money back at redemption than index linked 1 1/4 2020 currently standing at £297? i dont understand which is the better buy?

LardyCake

Here are a couple of links which may help you:
http://monevator.com/2009/10/20/how-to-calculate-bond-yields/
http://www.moneychimp.com/calculator/bond_yield_calculator.htm

Masomnia

Problem is you don't know what the yield is going to be because you don't know what RPI is going to be.

The 2020 one is actually 2 1/4%, which is why the market value is much higher.

You'll have to just guess what RPI might be and use that in the calculations, should help you work out which is better even if it doesn't tell you what the yield will actually be.

Richard_DandR

The 2020 stock is actually 2.5%. The price is much higher because coupon is double the rate of the 2017 and the RPI when the bond was issued was 83.0. RPI when the 2017 stock was issued was 193.725.

http://markets.ft.com/ft/markets/reports/FTReport.asp?dockey=UKG-260210

The price of 104% for the 1.25% is clean. Adjust for inflation to date would give a real price of around 118%.

Suggest the OP looks at the DMO website for details of how IL gilts work. I doubt the OP should invest without a good understanding of how they work.

jennessa

thanks to those that replied.the replies have been most helpful and you did well to understand my poorly worded question!thanks again!

Masomnia

Have you looked at index linked gilt funds? I know Legal and General and M & G do them, there're probably others. Gives you the exposure to the gilts and leaves the leg work working out yields to the manager.

Richard_DandR

The alternative is National Savings Index Linked savings certificates. There are 3 year and 5 year issues.