buying an individual gilt question

aroominyork

I don't think Truss did anything today to calm the markets so I hope for Friday's price or better when I buy a chunk of TN25 tomorrow. Think I'll also sell my global bond index fund and move it into single gilts. It's not quite Buffett's "when it rains gold put out the bucket not the thimble" territory, but 4.5% essentially tax free (low coupon) looks a good place to be.

masonic

aroominyork said:

I don't think Truss did anything today to calm the markets so I hope for Friday's price or better when I buy a chunk of TN25 tomorrow. Think I'll also sell my global bond index fund and move it into single gilts. It's not quite Buffett's "when it rains gold put out the bucket not the thimble" territory, but 4.5% essentially tax free (low coupon) looks a good place to be.

This might calm markets somewhat. https://www.bbc.co.uk/news/uk-63114279

aroominyork

masonic said:

aroominyork said:

I don't think Truss did anything today to calm the markets so I hope for Friday's price or better when I buy a chunk of TN25 tomorrow. Think I'll also sell my global bond index fund and move it into single gilts. It's not quite Buffett's "when it rains gold put out the bucket not the thimble" territory, but 4.5% essentially tax free (low coupon) looks a good place to be.

This might calm markets somewhat. https://www.bbc.co.uk/news/uk-63114279

Hands up if that convinces you we're not being governed by incompetent idealogues. (No, Mr Rees Mogg, just one hand. Not all your children too.)

Ciprico

(or have a misunderstood the calcuation, which is very possible)aroominyork said:

I don't think Truss did anything today to calm the markets so I hope for Friday's price or better when I buy a chunk of TN25 tomorrow. Think I'll also sell my global bond index fund and move it into single gilts. It's not quite Buffett's "when it rains gold put out the bucket not the thimble" territory, but 4.5% essentially tax free (low coupon) looks a good place to be.

This might calm markets somewhat. https://www.bbc.co.uk/news/uk-63114279

I am learning about Gilts as we go along, so could well be wrong, but maybe check TN25 will deliver 4.5%... To get the yield (TN25) you divide coupon / price x 100% ? so .25/90 x 100 = 0.27%  - same shown below on HL

Have I missed something

masonic

Ciprico said:
Have I missed something

You also need to factor in the capital gain at maturity.

aroominyork

That only calculates the coupon payments. It doesn't take into account the £100 redemption on maturity.

Linton

Ciprico said:

(or have a misunderstood the calcuation, which is very possible)aroominyork said:

I don't think Truss did anything today to calm the markets so I hope for Friday's price or better when I buy a chunk of TN25 tomorrow. Think I'll also sell my global bond index fund and move it into single gilts. It's not quite Buffett's "when it rains gold put out the bucket not the thimble" territory, but 4.5% essentially tax free (low coupon) looks a good place to be.

This might calm markets somewhat. https://www.bbc.co.uk/news/uk-63114279

I am learning about Gilts as we go along, so could well be wrong, but maybe check TN25 will deliver 4.5%... To get the yield (TN25) you divide coupon / price x 100% ? so .25/90 x 100 = 0.27%  - same shown below on HL

Have I missed something

1) A bond always pays coupon X face value (normally £100) every year.  How much you paid for it is irrelevent.  So TN25 always returns 25p every year in interest.
2) If you bought at £91.32 and keep to maturity you are repaid the £100 face value so that gives you a capital gain of £8.68
3)  The Yield to Maturity includes both.  

HL quote the "Running Yield" which gives the interest as a % of the cost price, but ignores the capital gain.  This will generally be different to the "Yield to Maturity", sometimes known as the "Yield".

NannaH

If I buy 5000 of TR28 at 6%,  is my Maths correct?
Cost - £5500 (at £1.10)
6% paid as yearly dividend ? 

Or paid in a lump at maturity December 2028? 

£330 interest x 6 years £1980 minus 

£24.75 yearly HL platform costs at 0.45% = £148.50 

So total gain of £1831.  

Is there a reason Not to buy this ( other than the minimal risk of needing to sell at a loss before maturity ?  

Bonds / Gilts are a bit of a mystery to me regarding the mechanics. 

EthicsGradient

NannaH said:

If I buy 5000 of TR28 at 6%,  is my Maths correct?
Cost - £5500 (at £1.10)
6% paid as yearly dividend ? 

Or paid in a lump at maturity December 2028? 

£330 interest x 6 years £1980 minus 

£24.75 yearly HL platform costs at 0.45% = £148.50 

So total gain of £1831.  

Is there a reason Not to buy this ( other than the minimal risk of needing to sell at a loss before maturity ?  

Bonds / Gilts are a bit of a mystery to me regarding the mechanics. 

The interest of 6% is on the face value (£5000), so £300/yr, not £330. At maturity, you get £5000 face value, not whatever you pay now. The 6% is paid half yearly - so £150 each December and June. 
So you pay £5500, get £150 at 13 points between now and Dec 2028 (though the first is effectively cut by the 'clean'/'dirty' price - see above maybe about £100?), and get back £5000. If you do also factor in HL's cost to hold, over about 5.25 years diminished in value from about £5500 to £5000, I'd call that about £124. So gain = 5000 +13*150 - 5500 - 124 - 100 =  £1226.

If you use the XIRR method above, and estimate the HL charge by decreasing the coupon by 0.45%, I reckon you're looking at a yield of about 3.7%.

A_T

NannaH said:

If I buy 5000 of TR28 at 6%,  is my Maths correct?
Cost - £5500 (at £1.10)
6% paid as yearly dividend ? 

Or paid in a lump at maturity December 2028? 

£330 interest x 6 years £1980 minus 

£24.75 yearly HL platform costs at 0.45% = £148.50 

So total gain of £1831.  

Is there a reason Not to buy this ( other than the minimal risk of needing to sell at a loss before maturity ?  

Bonds / Gilts are a bit of a mystery to me regarding the mechanics. 

just in case you didn't know if you hold it in a HL General Account (i.e. not SIPP or ISA) there will be no 0.45% charge