New to Investing in Gilts

mda99das

I'm looking at buying some UK gilts but just need to check my understanding. The prices quoted are for a £100 gilt which means that if this is quoted as £97.50 and expires Jan 2024 . I get £100 back on every gilt purchased? There is also the interest that is payable. Are these rates fixed or do they rise and fall? So if BoE raise rates, the value of my bond will fall so the rate I get for interest will be negative? Thus the profit I make would be £2.50 minus and interest that gets taken or plus any interest that gets paid? So is it possible to loose money on bonds if rates get hiked a lot?

Also there are a few brokers that offer this but my current broker only offers this via phone and can't do it via a LISA. Anyone opened an account with computershare and gone direct?
How was the process, as you have to be approved first.

Thanks

saajan_12

mda99das said:

I'm looking at buying some UK gilts but just need to check my understanding. The prices quoted are for a £100 gilt which means that if this is quoted as £97.50 and expires Jan 2024 .I get £100 back on every gilt purchased? - correct, so you pay 97.50 now and get back 100 in Jan24. 

There is also the interest that is payable. Are these rates fixed or do they rise and fall? - gilts are generally issued at fixed rates. Note that is the annual interest, so you'll get less for a partial year. 
So if BoE raise rates, the value of my bond will fall so the rate I get for interest will be negative? - the current value is 97.5. If rates rise, then the value of this bond falls in relative terms, but at the same time it'll rise to get closer to the £100 value by Jan 2024. The value in between is only relevant if you plan on selling before maturity.  
Thus the profit I make would be £2.50 minus and interest that gets taken or plus any interest that gets paid?  - - Correct £2.50 + the proportion of interest (minimal for this bond). 
So is it possible to loose money on bonds if rates get hiked a lot? - if you buy under par (100) and hold to maturity, and the issuer doesn't go bust, then you can only make money in cash terms. However you may do worse off compared to if you had invested later or in something else. 

Also there are a few brokers that offer this but my current broker only offers this via phone and can't do it via a LISA. Anyone opened an account with computershare and gone direct?
How was the process, as you have to be approved first.

Thanks

Comments in line on some of the technical questions. Basically if you're happy with £2.50 + interest on a £97.50 investment over 6 months and can hold the bond until maturity, then there's no effect from rate changes. You've fixed your return. Whether other investments may do better, is a different story. 

Not too sure about that particular platform. 

Linton

gilt interest is fixed as a % of the nominal value, £100 for fixed gilts.

Your understanding of the rise and fall in gilt prices due to changes in the current interest rates is correct. If you own a gilt paying 5% and rates increase to 6% your bond becomes less desirable.


If you sell before maturity it is possible to make a loss as many people have found out in the past year or so. The value at maturity is guaranteed to be £100. So it makes sense to buy gilts with a maturity date that matches your circumstances.

ChilliBob

I'm also pretty new to buying gilts and thought I'd add in some observations:

The coupon is different on different gilts, some are quite high, say 4-5% with a low capital gain (I. E. Close to 100 already). Some are close to zero for the coupon, so all of the 'return' is from the capital gain.

You don't pay tax on the capital gain of a gilt, useful if outside a tax wrapper. Note this doesn't apply to the gilts with 'strip' in the name for some reason.

If you're not confident of holding until maturity and you're holding in a tax wrapper have you looked into Money Market funds? It's a different situation to holding a gilt to maturity for sure, it's less certain, but I think if I wasn't sure if I could hold a gilt to maturity I'd look for something else perhaps. 

mda99das

I have found the following on bloomberg:

GTGBP2Y:GOV 

NAME	COUPON	PRICE	YIELD	1 DAY	1 MONTH	1 YEAR	TIME (EDT)
GTGBP2Y:GOV UK Gilt 2 Year Yield	0.63	92.70	4.96%	+2	+4	+220	3:36 AM

So the buy price is 92.72p which will give £1 but also paying 4.96p on every £1. Is that correct. It is fixed for 2 years, which is good enough risk.
Question is how do I buy the thing? IG / HL / Plus 500 only let you trade from their list. IG is even worse as its CFDs!!

Today is Jackson Hole, and I am sure Powell will say Higher for longer, 
any help appreciated. thanks.

InvesterJones

mda99das said:

I have found the following on bloomberg:

GTGBP2Y:GOV 

NAME	COUPON	PRICE	YIELD	1 DAY	1 MONTH	1 YEAR	TIME (EDT)
GTGBP2Y:GOV UK Gilt 2 Year Yield	0.63	92.70	4.96%	+2	+4	+220	3:36 AM

So the buy price is 92.72p which will give £1 but also paying 4.96p on every £1. Is that correct. It is fixed for 2 years, which is good enough risk.

I think the coupon is 0.63, so pays 0.63p on every pound. Yield takes account of the difference between the price and the value on maturity.

Doctor_Who

mda99das said:

I have found the following on bloomberg:

GTGBP2Y:GOV 

NAME	COUPON	PRICE	YIELD	1 DAY	1 MONTH	1 YEAR	TIME (EDT)
GTGBP2Y:GOV UK Gilt 2 Year Yield	0.63	92.70	4.96%	+2	+4	+220	3:36 AM

So the buy price is 92.72p which will give £1 but also paying 4.96p on every £1. Is that correct. It is fixed for 2 years, which is good enough risk.
Question is how do I buy the thing? IG / HL / Plus 500 only let you trade from their list. IG is even worse as its CFDs!!

Today is Jackson Hole, and I am sure Powell will say Higher for longer, 
any help appreciated. thanks.

As above, the coupon is 0.63% not 4.96%. Buying at 92.72p and holding to maturity will give 100p, plus the small coupon. I buy nominal gilts through Interactive Investor.

mda99das

This sounds like a dumb question, but I think my understanding of how the yield is calculated may be flawed. eg price is 92.70p and you get £1 at maturity. Parking the coupon payments to one side for the time being. 100/92.70 =  1.0787, excluding any coupon payments, which would give 7.87% return on the initial 92.70p invested. If I added the coupon payments into consideration then this should increase the return.

Doctor_Who

mda99das said:

This sounds like a dumb question, but I think my understanding of how the yield is calculated may be flawed. eg price is 92.70p and you get £1 at maturity. Parking the coupon payments to one side for the time being. 100/92.70 =  1.0787, excluding any coupon payments, which would give 7.87% return on the initial 92.70p invested. If I added the coupon payments into consideration then this should increase the return.

Over the duration of the gilt, which is just less than 2 years for TG25.

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

drphila

mda99das said:

This sounds like a dumb question, but I think my understanding of how the yield is calculated may be flawed. eg price is 92.70p and you get £1 at maturity. Parking the coupon payments to one side for the time being. 100/92.70 =  1.0787, excluding any coupon payments, which would give 7.87% return on the initial 92.70p invested. If I added the coupon payments into consideration then this should increase the return.

Is that the clean or dirty price (i.e exclusive or inclusive of accrued interest)?

wmb194

drphila said:

mda99das said:

This sounds like a dumb question, but I think my understanding of how the yield is calculated may be flawed. eg price is 92.70p and you get £1 at maturity. Parking the coupon payments to one side for the time being. 100/92.70 =  1.0787, excluding any coupon payments, which would give 7.87% return on the initial 92.70p invested. If I added the coupon payments into consideration then this should increase the return.

Is that the clean or dirty price (i.e exclusive or inclusive of accrued interest)?

The prices for those are quoted clean.