Gilts 101?

Linton

To answer the easy question - half the annual gilt interest is paid every 6 months. 

spider42

soulsaver said:

Anyone comment on 'usual' time scales? Or is it always a month after maturity date?

I've not held any gilts recently, but have had plenty of corporate bonds, which are very similar (just loans to companies rather than to the Government). You usually get the proceeds credited by your broker 2 or 3 days after maturity. It is very similar to receiving dividends, it just takes a short while for your broker to allocate all the money they've received to the accounts of all the holders of that share/bond. It will definitely not take anywhere near a month to get your money back.

I've never incurred a dealing fee on maturity either, although I suppose it is not impossible if your broker charges a corporate activity type fee.

biscan25

I have a question. When the twice yearly coupons are received, are these received gross? Will the broker report these to HMRC in the same way that a bank/building society reports interest, or does one need to do a tax return?

aroominyork

JohnWinder said:

Can you not use the YIELD function in excel to work out the yield of a bond which isn’t allowing the mental arithmetic useful when there are a whole number of years left to maturity?

Good question, which I have posted on this thread which discussed YTM calcs.

homerhotspur

when they keep talking about the government borrowing costs changing each day, or throughout a day, are they actually referring to the sale of newly issued gilts? I understand how yield rises as bond prices fall in the secondary market but surely when the newly issued bonds/gilts are offered for sale they are at par value at a set interest rate over a set number of years or is it a case that the ' market' can buy at below par eg £1 million 30 year gilt for £997k ,thereby increasing the interest rate/yield beyond what was intended?

Linton

homerhotspur said:

when they keep talking about the government borrowing costs changing each day, or throughout a day, are they actually referring to the sale of newly issued gilts? I understand how yield rises as bond prices fall in the secondary market but surely when the newly issued bonds/gilts are offered for sale they are at par value at a set interest rate over a set number of years or is it a case that the ' market' can buy at below par eg £1 million 30 year gilt for £997k ,thereby increasing the interest rate/yield beyond what was intended?

For some time now gilts ghave been auctioned rather than issued at par.  

Looking at https://www.dmo.gov.uk/data/pdfdatareport?reportCode=D2.1PROF7 what seems to be happening is that low coupon gilts are being auctioned, obviously for low prices.  This ,eans that the much of the capital gain/interest does not need to be paid until maturity date.

Possibly I have mis-understood something but the figures surpised me when I found them

homerhotspur

ah yes, an auction would make sense

masonic

homerhotspur said:

when they keep talking about the government borrowing costs changing each day, or throughout a day, are they actually referring to the sale of newly issued gilts? I understand how yield rises as bond prices fall in the secondary market but surely when the newly issued bonds/gilts are offered for sale they are at par value at a set interest rate over a set number of years or is it a case that the ' market' can buy at below par eg £1 million 30 year gilt for £997k ,thereby increasing the interest rate/yield beyond what was intended?

When the government issues (auctions) new gilts, the price will be dependent on the prices on the secondary market. Otherwise, why buy a newly issued gilt for a price higher than you can pay someone else for one that is already trading? As Linton says, they are not issued at par, but even if they were, they'd have to be priced competitively with the market or they wouldn't get bought.