Gilts are cheap again...?

Ciprico

Seems they are back around the price they were at the time of the mini budget.

Ie Tr27 costs less than a pound and gives 4.25% pa....

Of course it implies interest rates are going up again....

coastline

UK 10 yr nearly at last years levels. From that list the 30yr yields 4.65%.

United Kingdom Government Bond 10Y - 2023 Data - 1980-2022 Historical - 2024 Forecast (tradingeconomics.com)

VGOV not far away either. Now yielding 2.5%'

Vanguard UK Gilt UCITS ETF, UK:VGOV Advanced Chart - (LON) UK:VGOV, Vanguard UK Gilt UCITS ETF Stock Price - BigCharts.com (marketwatch.com)

All data performance..

Vanguard UK Gilt UCITS ETF, UK:VGOV Advanced Chart - (LON) UK:VGOV, Vanguard UK Gilt UCITS ETF Stock Price - BigCharts.com (marketwatch.com)

If there's a downturn and rates are cut you could see a nice little rally in bond funds. But when ?

Nice little site..

United Kingdom Government Bonds - Yields Curve (worldgovernmentbonds.com)

m_c_s

Yield are getting quite attractive again.

With millions of 2 and 3 yr fixed rate mortgages due to expire in the next 6 to 12 months from historically low rates of 0.5 to 1% the BOE could well cripple the wider economy if interest rates go above 5.5%.
Also 1.5 million mortgages are already variable rate so many families are now suffering a significantly reduced disposable income.

The BOE failed to act quickly in 2021 to tame inflation but perhaps they may take a more cautious route and pause for while to see if the sticky core inflation show signs of reducing in the summer. If not then lots of pain ahead for borrowers over the next 12 months at least.

Ciprico

I don't claim to really have an understanding of these things but I don't get annuities

So you can give your money to an insurance company, and they will give you 4.x% for life (and don't get your money back)

or you can buy a Gilt (take your pick, say T42) which will give you 4.5% for 20 years and after 20 years you get back all you money

I appreciate inflation will have taken a significant chunk, and the annuity payments are indexed linked, and my maths isn't good enough to do the calculations - but my gut feeling is the Gilt is a better option. (Plus it may have IHT benefits if held in a SIPP).

What do other people undertand that I don't, does the maths of inflation even out the returns of both ....?

Malthusian

Ciprico said:

I don't claim to really have an understanding of these things but I don't get annuities

So you can give your money to an insurance company, and they will give you 4.x% for life (and don't get your money back)

A single life level pension annuity is 6.8%pa at standard rates. (I realise you were looking at inflation linked annuities, but you were looking at a conventional gilt so a level annuity is a better comparison.)

or you can buy a Gilt (take your pick, say T42) which will give you 4.5% for 20 years and after 20 years you get back all you money

Or if you are happy to tie your money up (which presumably you are if you are prepared to tie up money in gilts and ignore the risk to capital) you can currently get just over 5%pa in fixed rate cash accounts. Without any explicit charges to come out of the headline rate, as you would have with gilts.

Albeit this doesn't lock in the yield for as long as holding a T42 gilt to maturity, but on the other hand you get access to the money much sooner than 20 years with no risk of taking a hit to the capital.

And if you are prepared to invest in capital-at-risk products with a 20 year horizon and ignore fluctuations in the capital for those 20 years, you should be able to do better with a more diverse portfolio.

You have to be really, really desperate to get a return of exactly 4.5%pa (before charges) for 20 years to ignore all those things. 

I appreciate inflation will have taken a significant chunk, and the annuity payments are indexed linked, and my maths isn't good enough to do the calculations - but my gut feeling is the Gilt is a better option. (Plus it may have IHT benefits if held in a SIPP).

The IHT benefits are for the SIPP, not the gilt. 

ColdIron

Ciprico said:

and the annuity payments are indexed linked

Only if that's the type of annuity that you purchased. Level annuities will pay the same each year. And the payments of escalating or index linked ones will be considerably less in the early years

It's the same with joint annuities where payments continue on the death of a spouse. You don't get nowt for owt

masonic

Ciprico said:

Of course it implies interest rates are going up again....

An instrument like TR27 probably tells you more about rates staying higher for longer, than anything more short term (BoE base rate is already above its yield).

GeoffTF

coastline said:

UK 10 yr nearly at last years levels. From that list the 30yr yields 4.65%.

United Kingdom Government Bond 10Y - 2023 Data - 1980-2022 Historical - 2024 Forecast (tradingeconomics.com)

VGOV not far away either. Now yielding 2.5%'

Vanguard UK Gilt UCITS ETF, UK:VGOV Advanced Chart - (LON) UK:VGOV, Vanguard UK Gilt UCITS ETF Stock Price - BigCharts.com (marketwatch.com)

All data performance..

Vanguard UK Gilt UCITS ETF, UK:VGOV Advanced Chart - (LON) UK:VGOV, Vanguard UK Gilt UCITS ETF Stock Price - BigCharts.com (marketwatch.com)

If there's a downturn and rates are cut you could see a nice little rally in bond funds. But when ?

Nice little site..

United Kingdom Government Bonds - Yields Curve (worldgovernmentbonds.com)

The VGOV yield to maturity was 3.9% on 30 April 2023:

https://www.vanguard.co.uk/professional/product/etf/bond/9501/uk-gilt-ucits-etf-gbp-distributing

It will be higher now.

ColdIron

Ciprico said:

I don't claim to really have an understanding of these things but I don't get annuities

For a high level view this is an easy to digest summary of what is available. Skip Paul Lewis and head for - What are the different types of annuity?

https://www.ageuk.org.uk/information-advice/money-legal/pensions/annuities/

CoolGeek123

Can I buy the 10 year UK gilt for my SIPP? If yes, how to do it? I am unable to find this security instument. I can see other ETFs and fixed income funds in my AJ Bell SIPP, but cannot find direct retail gilts for individual investors. 

Ciprico

I found it ... Search on say TR27...

Make sure that's the gilt you want or find the corresponding TR type number.

Googling  hl gilts  provides a nice clear sortable  list...