A couple of simple gilt questions.. I think!

ChilliBob

Hey guys,

I'm about to dive into some gilt purchases on II after some careful consideration of quite a lot of things. In this particular case I'm buying TN25, a fairly popular choice by all accounts.. before I do I have a few questions I'm hoping the more experienced gilt investors on here can help with:

1. Clean/Dirty price - I think the next coupon is end of July - so I think the price will be 'quite dirty' - how do I work out what I'll need to pay to make sure I've got enough cash in the account?! - I think someone said iWeb was better than II for accrued interest or something?!

2. Maturity - sounds really silly, but upon maturity date, do the gilts simply vanish from your portfolio to be replaced by the cash they represented?

3. T26 - I was thinking of building a ladder of gilts instead of just TN25, so I looked, naturally, for TN26 and 27, alas, I could only find TN28..... I did find T26 though - but hardly any information anywhere, which made me wonder what exactly it was?! For those building a low coupon ladder, what have you gone for besides TN25 and 24?

I'm aware savings rates are on the rise, so this makes the hassle of gilts less attractive, but I think if I just sit in savings then combined with other income I'll be in the 40% tax bracket - which definitely makes it worth the effort!

Thanks for reading

Doctor_Who

I'm fairly new to buying gilts, so not experienced, but I've bought TN24 and TN25 over the last month or so.

1. The accrued interest payment calculation can be found on the DMO website here. For TN25 the maximum accrued interest will be 0.25%/2 X number of nominal gilts, so for £20K of gilts bought the maximum accrued interest will be £25. I've bought through II with no issues, just make sure you have the extra cash in the trading account.

2. This is my understanding of what happens at maturity, but I've not had any mature yet, so could be wrong!

3. There are not many low coupon gilts with maturity dates before 2027-28. The only other one I've been looking at is T26A, which is on II.

I am a basic rate tax payer and these low coupon/below par gilts make sense for me vs fixed term accounts and 20% tax.

wmb194

On another forum someone posted a link to this spreadsheet that gives a good overview of the current conventional gilt market. The hyperlinks take you to their respective pages on the LSE's website.

You should easily be able to build an annual, low coupon ladder out to 2033.

https://www.yieldgimp.com/gilt-yields

aroominyork

ChilliBob said:

Hey guys,

I'm about to dive into some gilt purchases on II after some careful consideration of quite a lot of things. In this particular case I'm buying TN25, a fairly popular choice by all accounts.. before I do I have a few questions I'm hoping the more experienced gilt investors on here can help with:

1. Clean/Dirty price - I think the next coupon is end of July - so I think the price will be 'quite dirty' - how do I work out what I'll need to pay to make sure I've got enough cash in the account?! - I think someone said iWeb was better than II for accrued interest or something?!

ii will not sell you more units than you have money for, taking into account the accrued interest. Just put in the amount you want to spend and ii will work out how many units you can afford. This is my transaction note from buying TN25 on ii last month:

56,618.45 units @ £0.923837

Cost of Bonds £52,306.22

Commission £7.99

Accrued Interest £52.79

Total Cost  £52,367.00

ChilliBob

Doctor_Who said:

I'm fairly new to buying gilts, so not experienced, but I've bought TN24 and TN25 over the last month or so.

1. The accrued interest payment calculation can be found on the DMO website here. For TN25 the maximum accrued interest will be 0.25%/2 X number of nominal gilts, so for £20K of gilts bought the maximum accrued interest will be £25. I've bought through II with no issues, just make sure you have the extra cash in the trading account.

2. This is my understanding of what happens at maturity, but I've not had any mature yet, so could be wrong!

3. There are not many low coupon gilts with maturity dates before 2027-28. The only other one I've been looking at is T26A, which is on II.

I am a basic rate tax payer and these low coupon/below par gilts make sense for me vs fixed term accounts and 20% tax.

Thanks, that's very helpful, the website you linked to looks well worth a thorough read too. 

T26a, interesting, I'll still try to find more on T26 though as it has a lower coupon. Perhaps the link in the most recent post on this thread will give more info. 

ChilliBob

aroominyork said:

ChilliBob said:

Hey guys,

I'm about to dive into some gilt purchases on II after some careful consideration of quite a lot of things. In this particular case I'm buying TN25, a fairly popular choice by all accounts.. before I do I have a few questions I'm hoping the more experienced gilt investors on here can help with:

1. Clean/Dirty price - I think the next coupon is end of July - so I think the price will be 'quite dirty' - how do I work out what I'll need to pay to make sure I've got enough cash in the account?! - I think someone said iWeb was better than II for accrued interest or something?!

ii will not sell you more units than you have money for, taking into account the accrued interest. Just put in the amount you want to spend and ii will work out how many units you can afford. This is my transaction note from buying TN25 on ii last month:

56,618.45 units @ £0.923837

Cost of Bonds £52,306.22

Commission £7.99

Accrued Interest £52.79

Total Cost  £52,367.00

Nice, that's a great clear example for me. 

I do remember something about reporting from iweb perhaps being clearer on these accrued interest amounts, which you need to put on your tax return, but perhaps i remember wrong. 

ChilliBob

wmb194 said:

On another forum someone posted a link to this spreadsheet that gives a good overview of the current conventional gilt market. The hyperlinks take you to their respective pages on the LSE's website.

You should easily be able to build an annual, low coupon ladder out to 2033.

https://www.yieldgimp.com/gilt-yields

That's brilliant, looks like a very useful spreadsheet. I wonder if it'll enable me to suss out the naming convention he he

Doctor_Who

ChilliBob said:

Nice, that's a great clear example for me. 

I do remember something about reporting from iweb perhaps being clearer on these accrued interest amounts, which you need to put on your tax return, but perhaps i remember wrong. 

This is taken from the Gov.uk website and explains accrued income and taxation:

'If you buy a security with accrued interest, the next interest payment that you receive will be taxable. But, because you’ve already paid an extra amount to buy the security, you can get tax relief under the Accrued Income Scheme. The extra amount you’ve paid is an ‘accrued income loss’. You deduct this from the interest that you get.'

ChilliBob

Yeah, so you need to know the Accrued income loss, it seems from another thread that II do not provide this, so not sure if you need to keep a record of the clean price at execution or what? But it seems, and I could be wrong, that iweb may keep this value for you. I have and use both platforms, so not overly bothered which I use, but if one does me a favour, then result! 

aroominyork

ii do show accrued interest. See the info I copied in the post above from the transaction note.

Doctor_Who

ChilliBob said:

Yeah, so you need to know the Accrued income loss, it seems from another thread that II do not provide this, so not sure if you need to keep a record of the clean price at execution or what? But it seems, and I could be wrong, that iweb may keep this value for you. I have and use both platforms, so not overly bothered which I use, but if one does me a favour, then result! 

II provide the accrued interest figure on the contract note, this is the accrued income loss figure mentioned in my post above.