Severn Trent RPI-linked corporate bond

Sceptic001

Anyone who expects inflation to persist and doesn't mind the risk associated with corporate bonds may be interested in this Severn Trent ten year bond, following the precedent of National Grid (see this thread) and Tesco Bank.

Briefly, it pays a starting coupon (interest rate) of 1.3% which then moves in line with the RPI. Also the capital value on redemption rises in line with inflation.

Min. investment £2000, can be held in SIPP or ISA. Make sure you read all the fine print before taking the plunge.

mroller

As much as I like bonds, this one doesn't appeal to me at all.
It is not time to buy a linker IMO.

oldvicar

As much as I dislike (fixed coupon) bonds ATM, this one would appeal in principle precisely because of the RPI linking.

IMO it needs to be in a tax free environment such as a SIPP to make sense.

So a totally contrary opinion to mroller from me. Will be interesting to see if a consensus emerges.

afwone

mroller wrote: »

As much as I like bonds, this one doesn't appeal to me at all.
It is not time to buy a linker IMO.

Over ten years, and with no offerings from NS&I this year, I would be tempted. That said I would only want it in an ISA, and mine is not with one of the brokers handling this IPO.

Reaper

In May last year the Consumer Prices Advisory Committee set up a group to "to identify, understand and eliminate unjustified causes of the gap between CPI and RPI".

Let's hope they don't fiddle the RPI figure too much lower or bonds like this will become unattractive.

oldvicar

Reaper wrote: »

In May last year the Consumer Prices Advisory Committee set up a group to "to identify, understand and eliminate unjustified causes of the gap between CPI and RPI".

Let's hope they don't fiddle the RPI figure too much lower or bonds like this will become unattractive.

Oh dear that sounds bad. Since CPI is necessary to be compared with international equivalents, then it will have to be RPI that is mucked about with to 'eliminate' 'the gap'.

coastline

A question here as I dont really understand the workings...thanks in advance to anyone who replies..
If held for the full 10 years you'll get 1.3% income annually...plus the RPI on the 1.3% in the following years..
The initial investment...say £10,000...is this also linked to the RPI for the full 10 years...eg...RPI 30% so final payout £13,000..I'm guessing..

Sceptic001

Reaper wrote: »

In May last year the Consumer Prices Advisory Committee set up a group to "to identify, understand and eliminate unjustified causes of the gap between CPI and RPI".

Let's hope they don't fiddle the RPI figure too much lower or bonds like this will become unattractive.

That would indeed be disturbing. Rather like trying to eliminate the difference between apples and oranges.

Do you have a link for it? All I can find is:

CPAC(11)07 Improving the CPI and RPI Private Rental Series and the Rental Equivalence Approach to Owner Occupiers’ Housing
CPAC(11)08 Update on the Development of the Net Acquisitions Approach to Measuring Owner Occupiers' Housing Costs
CPAC(11)09 Improving the Measurement of Car Prices in the CPI and RPI
CPAC(11)10 Measurement of Clothing Prices (May 2011 paper)
http://www.ons.gov.uk/ons/guide-method/development-programmes/other-development-work/consumer-prices-advisory-committee/cpac-papers/index.html

BLB53

Here's an article from FII which might help

http://fixedincomeinvestor.selftrade.co.uk/x/mem_selftrade/analysis.html?cat=Analysis%20%26%20Comment&type=Bond%20of%20the%20Week&aid=757

Reaper

Sceptic001 wrote: »

Do you have a link for it?

Not a direct one I'm afraid, only other people talking about it.

Here's one from Schroders:
http://www.schroderstalkingpoint.com/tp/home?id=a0j50000000wK2hAAE

It includes this:

One year on CPAC has reported that it is making progress towards its goal; the target is to implement any changes by the end of 2013.

Glen_Clark

Reaper wrote: »

Let's hope they don't fiddle the RPI figure too much lower .

I stopped taking any notice of the Government Inflation Statistics when they
excluded housing costs