buying an individual gilt question

biscan25

aroominyork said:

masonic said:

A_T said:

I guess it's like buying an annuity - but with the principle returned on a certain date.

I'm not sure what platforms allow investors to buy individual gilts - I know HL do but not Fidelity.

Interactive Investor do. I believe iWeb/Halifax do, but it may be telephone only.

I bought a nominal gilt online on ii a few weeks ago. Today it cannot be traded online. I spoke to ii who explained this is due to market volatility but they said phone trading would be charged at the usual online rate (£7.99) and not at the standard £49 phone dealing rate.

This is insane, gilts are just about the most liquid asset going, and I've never known trading to be blocked for them.

In answer to some of the other questions on here:

Long dated bonds usually have a higher yield than short dated bonds. This is because holders of long dated bonds are greater exposed to changes in interest rates, compared with shorter bonds. This is not the case now for a few reasons:

• The economy is is a contracting phase of the market cycle, which leads to high short term interest rates. This predated the Kamikwasi budget.
• The BoE have had to step in and have announced that they are buying long-dated bonds. This led to yields falling for the long dated bonds, whereas short bond yields were affected to a much lesser extent.

Comparing them to holding cash:

• To get similar rates as gilts, you need to use fixed rate savings, which have zero liquidity, i.e. you can't sell your fixed bond to someone else,
• Tax is payable on interest on cash, and on coupons on gilts. The redemption payment with gilts is tax free. Gilts tend to have low coupons, some 1/8%, so can be very tax efficient for many.
• The yields on gilts vs fixed interest cash savings depends on supply and demand factors from banks. If interbank lending is cheap, banks don't need to give retail savers good deals. Likewise, if there is a crunch on mortgage lending, banks and building societies will need less capital. Broadly, they tend to be pretty close.
• You have to pay dealing fees (£5-£12) when buying gilts, and there is a small bid-offer spread.
• Despite the doomsayers, the chance of default can be assumed to be zero. It hasn't happened in over 300 years.

Comparing to corporate bonds

• These have a nonzero risk of default
• They are less marketable, and less liquid than government bonds
• They are affected more by government policy, than government bonds. E.g. the budget increased the spread between government bonds and corporate bonds.
• Yields vary with the rating of the bond. E.g. Microsoft will be much lower yielding than a delinquent company.
• Personally, I'm not keen on these either. To diversify default risk you need to hold a lot of bonds, so have to use a fund really. The fees on these funds are large in comparison to yields.

A_T

boxedin said:

Just bought some tn24  The gry on the brokers site 3.19 the gry on sharescope 4.36 The spread is 1.05 I am assuming that is the reason for the difference but I could be wrong either way its better than cash in an isa for me

I am interested in index linked gilts, the spread looks to be about 2.5% !. Does anyone have experience of buying these and the pitfalls. in these volatile times. Some went up by 20% yesterday I am guessing thats because of BOE purchases 

index-linked seem a bit opaque - probably too complicated for me. I can't find information on their running yields

aroominyork

boxedin said:

Just bought some tn24  The gry on the brokers site 3.19 the gry on sharescope 4.36 The spread is 1.05 I am assuming that is the reason for the difference but I could be wrong either way its better than cash in an isa for me

I am interested in index linked gilts, the spread looks to be about 2.5% !. Does anyone have experience of buying these and the pitfalls. in these volatile times. Some went up by 20% yesterday I am guessing thats because of BOE purchases 

The spread on gilts usually shows as £1 but from what I can see in reality it is minimal - buy and sell prices are very close.

Ciprico

Someone above said you can't sell Gilts online in II  - Can't buy either....


CORRECTION - you can buy, but you can't set a limit

wmb194

Brokers will sometimes suspend online dealing when the market is volatile.

m_c_s

Treasuries are easily bought on HL. Have added TN24 and TN25 in the last few days without a problem. 4 to 5% guaranteed return is hard to turn down when the alternative is just letting the next 2 or 3 years cash withdrawals sitting in a SIPP earning between 0.65 and 1.25%. 

aroominyork

Moody's review the UK's rating and outlook on 21 October. I expect the OBR, in its meeting with Truss and Kwarteng today, will say that gives the government three weeks to straighten out this mess. I don't think anyone thinks they can tread water until the 23 November fiscal plan. Doubtless the govt will tell the Treasury to come up with "something, anything, but do it quickly".

biscan25

m_c_s said:

Treasuries are easily bought on HL. Have added TN24 and TN25 in the last few days without a problem. 4 to 5% guaranteed return is hard to turn down when the alternative is just letting the next 2 or 3 years cash withdrawals sitting in a SIPP earning between 0.65 and 1.25%. 

I bought TN24, TN25 and T26. It was a no brainer for me as this money is earmarked for the next remortgage or house move.

biscan25

aroominyork said:

boxedin said:

Just bought some tn24  The gry on the brokers site 3.19 the gry on sharescope 4.36 The spread is 1.05 I am assuming that is the reason for the difference but I could be wrong either way its better than cash in an isa for me

I am interested in index linked gilts, the spread looks to be about 2.5% !. Does anyone have experience of buying these and the pitfalls. in these volatile times. Some went up by 20% yesterday I am guessing thats because of BOE purchases 

The spread on gilts usually shows as £1 but from what I can see in reality it is minimal - buy and sell prices are very close.

The spread being 1p is purely presentational. Its about half this in practice.

aroominyork

Can we please come up with a formula to calculate the APR of a nominal gilt? My starting point is below, but needs adjusting for two things:

1) accrued interest since the last coupon payment. On 6/9/22 I placed a buy order for £40,000 of TN24 (0.125%, maturing 31/1/24). This showed on the contract note as (41,717.4 units @ 95.87p = £39,994.47) + "Interest +039 days, £5.53". This cross-checks (but only approx...?) as £40,000 * 0.125% / 2 = £25 * 39 / 182 = £5.35. So this tells me that when the gilt goes ex-dividend seven days before coupon payments the price of the gilt is not adjusted/does not fall like equities or distributing funds.

2) the impact of the capital being held by the government until maturity.

My calculation which does not take these two factors into account, but allows for the three coupon payments due and reflects 512 days until maturity, is (((100+(0.125*3))/95.87)-1)/(512/365) = 3.35%.