TN treasury gilts

zagfles

masonic said:

zagfles said:

masonic said:

They are quite complicated. Some show a price including index linking, some without. You'll obviously have to pay a price reflecting all of the accrued index linking, so this may be a lot more than the price shown. The nominal yield will tend to be a lot lower than standard gilts. For example a conventional gilt now yields about 4% to maturity, while an index linked gilt may be in the region of -1%. Index linked gilts tend to give better returns when inflation turns out to be higher than markets expect.

I've been looking at index linked gilts, and if I understand correctly the real yield on most of them is now at last positive, which means if you hold it to maturity you'll gain in real terms (subject to charges etc). So now it does seem conceivable that someone who "has enough" and whose only objective is to preserve their pot in real terms rather than increase it, could buy a "gilt ladder" with maturity dates aligned to their spending requirements, so guarantee the current real value of their pot...

Yes, I've come to the same conclusion about the real yield. Because of the way the indexation works, its not quite as simple as that, but this is all more or less correct, and I've not yet had the inclination to sit down and work out those minor intricacies.

My understanding from a minimal amount of research (so could be wrong!) is that pre 2005 IL gilt prices are usually shown including the inflation uplift, whereas post 2005 ones aren't. The indexation methology changed then.

So it seems if the price of a post 2005 IL gilt is under 100, then it will rise in real terms to the maturity date, and even if the coupon only pays the platform/dealing charges, you'll be up in real terms.

What I don't understand is how the platform will show the correct value if the price doesn't account for the inflation uplift. HL say "If you own an index linked gilt issued after 2005 you won't be able to see a price adjusted for inflation, so the prices shown might not reflect the true value.... it's something we're working on..."

Useful info here: https://www.dmo.gov.uk/data/gilt-market/index-linked-gilts/

masonic

The other issue is the actual index values used for indexation, which are outlined in the prospectus. You therefore may not capture indexation over the period you might assume.

zagfles

masonic said:

The other issue is the actual index values used for indexation, which are outlined in the prospectus. You therefore may not capture indexation over the period you might assume.

Looks to be reasonably straightforwards, pre 2005 bonds have 8 months RPI lag and post 2005 about 3 months, with minor foibles...