buying an individual gilt question

biscan25

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. 

This will pay £300 interest a year, half yearly (so £148 a time), plus £5000 at maturity. So gain is 300*6 =1800 -500 capital loss =1500.
So yield is (7000/5500)^(1/6) -1 =4.1%, before fees and tax

Interest/redemption is calculated on the face value rather than today's price.

biscan25

Oh and HL's fees are zero for the fund and share account, it's 0.45% for the SIPP/ISA.
If you are holding them outside a tax efficient wrapper TG28 (1.625%) is probably a better option

NedS

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. 

On HL, fees for gilts are capped at £200/year, so if you have a sizeable portfolio of other shares, IT's ETFs and gilts/bonds, then you may end up paying a substantially lower overall percentage. They essentially become free to hold over the first £45k once you hit the cap.

NannaH

Right, got it now thanks. 

Are Gilts only priced at £1 when they are first introduced ?   Then they rise and fall within the market? 

Doesn’t look like such a good deal now.  I’ve just got a 1 year fix at 4% for savings so I’ll see which way rates are going for a few months I think. 

A_T

biscan25 said:

Oh and HL's fees are zero for the fund and share account, it's 0.45% for the SIPP/ISA.
If you are holding them outside a tax efficient wrapper TG28 (1.625%) is probably a better option

plus HL will charge a fee of £11.95 to buy and sell the gilt

EthicsGradient

NannaH said:

Right, got it now thanks. 

Are Gilts only priced at £1 when they are first introduced ?   Then they rise and fall within the market? 

Doesn’t look like such a good deal now.  I’ve just got a 1 year fix at 4% for savings so I’ll see which way rates are going for a few months I think. 

Yes, that is how they work - since, in this case, the 6% is more than you'd get for a new gilt, the price of this old one has gone above £1.

For private investors who get the FSCS guarantee on our savings, there may not be that much attraction of holding gilts directly (especially if someone charges you a fee for holding them). They are important as safe investments to pension funds and similar, that wouldn't be covered by the FSCS guarantee if they just lent the money to banks.

biscan25

NannaH said:

Right, got it now thanks. 

Are Gilts only priced at £1 when they are first introduced ?   Then they rise and fall within the market? 

Doesn’t look like such a good deal now.  I’ve just got a 1 year fix at 4% for savings so I’ll see which way rates are going for a few months I think. 

They are nominally priced at £1, and then are sold at auction and the price received might be more or less than £1.

One year fixes are good IMO. That rate won't stick around for long (as market yields have come down today) and will come down reasonably quickly so I'd fund it ASAP.

I'm using a one year fix for my short term savings and gilts for 2 year + savings.

A_T

biscan25 said:

NannaH said:

Right, got it now thanks. 

Are Gilts only priced at £1 when they are first introduced ?   Then they rise and fall within the market? 

Doesn’t look like such a good deal now.  I’ve just got a 1 year fix at 4% for savings so I’ll see which way rates are going for a few months I think. 

They are nominally priced at £1, and then are sold at auction and the price received might be more or less than £1.

One year fixes are good IMO. That rate won't stick around for long (as market yields have come down today) and will come down reasonably quickly so I'd fund it ASAP.

Some say the opposite and that the BoE are likely to raise rates in November

aroominyork

EthicsGradient said:

NannaH said:

Right, got it now thanks. 

Are Gilts only priced at £1 when they are first introduced ?   Then they rise and fall within the market? 

Doesn’t look like such a good deal now.  I’ve just got a 1 year fix at 4% for savings so I’ll see which way rates are going for a few months I think. 

For private investors who get the FSCS guarantee on our savings, there may not be that much attraction of holding gilts directly (especially if someone charges you a fee for holding them). They are important as safe investments to pension funds and similar, that wouldn't be covered by the FSCS guarantee if they just lent the money to banks.

They are a useful option in tax-wrappers (SIPP  or S&S ISA) as an alternative to bond funds.

Linton

NannaH said:

Right, got it now thanks. 

Are Gilts only priced at £1 when they are first introduced ?   Then they rise and fall within the market? 

Doesn’t look like such a good deal now.  I’ve just got a 1 year fix at 4% for savings so I’ll see which way rates are going for a few months I think. 

Gilts are initially  priced at £100.  The published price is in £s.