National Grid launches first ever inflation-linked retail bond

Ark_Welder

cmorgan091 wrote: »

Also does anyone with more experience know what to expect the price of the bonds on the secondary market to do over time? Do they go on at a loss? Do they usually move with inflation (owing to the fact that initial capital adjusts with RPI)?

Initially, I think that when the bonds start trading then it will be at a premium to the issue price because anyone that wants them but did not want to open up a nominee account with one of the distributors might buy into them. After that, your normal supply and demand for a listed security with the main driver being inflation expectations, so trending higher over time - but not matching RPI exactly.

But perhaps there will be a drop in price in 6 and/or 12 month's time when those who have bought in with the expectation of coupon payments of 1.25% plus RPI realise their mistake and decide that they don't want to wait 10 years for their indexed return...

If you do sell before the term then there is always the chance of making both a real and nominal loss (and equally, a real and nominal gain) because, until redemption, the price is subject to the fickleness of investor demand, and so will not necessarily be an exact match for RPI to that date (plus there will be the usuall bid/offer spread). It is only at redemption when NG repay the RPI-adjusted capital that there will be certainty over the return (only the case for those that did buy at the offer rather than in the secondary market).

Ark_Welder

EPIC code for the bonds is: NG1Q

http://www.londonstockexchange.com/exchange/prices-and-markets/retail-bonds/company-summary.html?fourWayKey=XS0678522490ZZGBPUKCP


Don't monitor it too much!!!

Ark_Welder

For anyone interested, NG are looking to raise a further £10m at a price of 101.35 + accrued interest.

http://www.nationalgrid.com/corporate/Media+Centre/Press+Releases/Global+Press+Releases/retail+bond+reopens.htm

cmorgan091

Cheers AW for keeping this up to date. For me I have no more ISA allowance for this year and when it comes round in April I think my first thought (as with this year) for Index Linked Savings will be the NS&I ILC's which I maxxed out. Hopefully they should be released again about that kind of time.

Ark_Welder

Might be worth checking the price of the bond again in April. The first distribution is to be made on the 6th so there might be a bit of a shock for those that are expecting a 5%ish distribution rather than a 1.3% (full-year figures). There could be a bit of selling just after and might depress the price a touch. You never know!

Masomnia

Wouldn't you expect a better coupon for something rated BBB+? Even if it is index linked.

Ark_Welder

Masomnia wrote: »

Wouldn't you expect a better coupon for something rated BBB+? Even if it is index linked.

Perhaps it's a reflection of the lack of competition in the retail market, the fact that it has only a 10-year life, and also that it will redeem at par in the event of deflation over the period - unlike IL-gilts.

From what I can see of NG's existing corporate linkers, the coupons are higher, but they were issued when those on IL gilts were higher. DMO are issuing an new 50-year linker with a coupon starting at just 0.375%...

Sceptic001

For info:

Nov 02- Fitch Ratings has affirmed National Grid plc's (NG) Long-term Issuer Default Rating (IDR) at 'BBB' and its subsidiaries, National Grid Electricity Transmission plc (NGET), National Grid Gas plc (NGG), and National Grid Gas Holdings plc (NGGH), NGG's parent, at 'A-'. The Outlooks remain Stable.
http://www.reuters.com/article/2011/11/02/idUSWLA830620111102

Ratings agencies have a job to do, I suppose. But it's strange that I have no sleepless nights over having money in NG, but would not sleep so easy if my money was in triple-A rated French government bonds.