Which short dated gilt(s) would you buy right now and why?

Aminatidi

I have a six figure sum sat in HL that I want a degree of certainty with as a "barbell" to my global tracker.

Individual low coupon gilts appeal as there's a guaranteed return if held until maturity and the tax benefits as this is an unwrapped account as my ISA limit is used up and will be pretty much every year for the foreseeable.

I don't envisage needing the money but I like having the optionality of "simply" selling the gilt rather than money being locked away like it is in a fixed term savings account.

Where I'm struggling is deciding which one(s) to buy and how long to "lock in" the return for especially with uncertainty about rates.

Appreciate people will have differing views on this and there isn't really a "right" answer so I'd like to hear those views.

I think these are the gilts I'd be considering.

TN24 0 1/8% Treasury Gilt 2024
TN25 0 1/4% Treasury Gilt 2025
T26 0 1/8% Treasury Gilt 2026
TN28 0 1/8% Treasury Gilt 2028

masonic

TG61, albeit 0.5% coupon, is the ultimate lazy option.

QrizB

Aminatidi said:

Appreciate people will have differing views on this and there isn't really a "right" answer so I'd like to hear those views.

I think these are the gilts I'd be considering.

TN24 0 1/8% Treasury Gilt 2024
TN25 0 1/4% Treasury Gilt 2025
T26 0 1/8% Treasury Gilt 2026
TN28 0 1/8% Treasury Gilt 2028

Opinion:

Buy them all, build a ladder. When TN24 matures, roll it over into a 2029-maturing gilt. Repeat until youneed the money for something else.

aroominyork

masonic said:

TG61, albeit 0.5% coupon, is the ultimate lazy option.

TG61 doesn't really hit the desire to be able to sell without the risk of an interest rate shock. If you share the view that interest rates will stay high for longer than the market expects, I would go for the shorter end (2025/2026) and make another call after it matures https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

masonic

aroominyork said:

masonic said:

TG61, albeit 0.5% coupon, is the ultimate lazy option.

TG61 doesn't really hit the desire to be able to sell without the risk of an interest rate shock. If you share the view that interest rates will stay high for longer than the market expects, I would go for the shorter end (2025/2026) and make another call after it matures https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

RPI value in July is lower than it was in May. In October, energy price hikes fall out of the annual change figure. Meanwhile the economy is looking quite septic. Long dated is now looking a bit like premium bonds - an ok tax privileged return by historical standards, with a chance to win a short term capital gain. As negatively correlated ballast, long is traditionally better as you don't need as much.

NB: my own investments are currently 100% equities and I'm not planning to change that.

aroominyork

masonic said:

aroominyork said:

masonic said:

TG61, albeit 0.5% coupon, is the ultimate lazy option.

TG61 doesn't really hit the desire to be able to sell without the risk of an interest rate shock. If you share the view that interest rates will stay high for longer than the market expects, I would go for the shorter end (2025/2026) and make another call after it matures https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

RPI value in July is lower than it was in May. In October, energy price hikes fall out of the annual change figure. Meanwhile the economy is looking quite septic. Long dated is now looking a bit like premium bonds - an ok tax privileged return by historical standards, with a chance to win a short term capital gain. As negatively correlated ballast, long is traditionally better as you don't need as much.

NB: my own investments are currently 100% equities and I'm not planning to change that.

That's a good answer to a different question. But it doesn't help someone who wants to sleep soundly knowing they are unlikely to suffer a shock if cashing out short term.

Re "long is traditionally better", the yield curve is still inverted to favour short.

masonic

aroominyork said:

masonic said:

aroominyork said:

masonic said:

TG61, albeit 0.5% coupon, is the ultimate lazy option.

TG61 doesn't really hit the desire to be able to sell without the risk of an interest rate shock. If you share the view that interest rates will stay high for longer than the market expects, I would go for the shorter end (2025/2026) and make another call after it matures https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

RPI value in July is lower than it was in May. In October, energy price hikes fall out of the annual change figure. Meanwhile the economy is looking quite septic. Long dated is now looking a bit like premium bonds - an ok tax privileged return by historical standards, with a chance to win a short term capital gain. As negatively correlated ballast, long is traditionally better as you don't need as much.

NB: my own investments are currently 100% equities and I'm not planning to change that.

That's a good answer to a different question. But it doesn't help someone who wants to sleep soundly knowing they are unlikely to suffer a shock if cashing out short term.

Re "long is traditionally better", the yield curve is still inverted to favour short.

Short dated gilts don't ever offer the benefit of material negative correlation with equities, while long dated normally do. So as defensive assets to balance against equities in a portfolio, they are less useful and would require a lower % equities for equivalent volatility reduction. This is a drag on long term returns.

I may have misunderstood what "barbell" means, but I took it to mean they were serving the same purpose as a bond fund in a traditional multi-asset portfolio. Hence the most likely sell condition would be during a equity market crash.

It would be interesting to consider the scenario where there was a price shock at this normalised level. Last seen around the time of the catastrophic KamiKwasi budget and immediately countered with emergency action.

Anyway, the question posed was what would I buy.

Aminatidi

Barbell was shorthand for "won't lose a lot regardless of what equities do" not necessarily that they go up when equities go down.

From what I think I know of the possible impact of interest rates on longer duration/maturity I don't think I'd be comfortable with 2061 as a maturity date.

I think I have a reasonably good feel for what I'm not comfortable with but I'm not sure of the pros and cons of each issue at the shorter end.

Easy to say buy 2024/2025 then roll them at the time - the only downside I can think of there is if yields are lower at the time.

Lucky dip on that one I guess?

masonic

You're not paying a high cost to lock in until 2028, but hedging your bets prevents disappointment.

FinaceFave

I agree with the poster who compared gilts to premium bonds.

My wealth lies in stocks and shares----a portfolio of a varying 45-55 companies over 8 or 9 market sectors, managed by my portfolio manager in liaison with my Wealth Manager. Properties also figure big in my income. The current and probable economic medium future gives me no reason to change my strategy.

I recommend advice from a Wealth Manager.

friolento

FinaceFave said:

I recommend advice from a Wealth Manager.

I am a  bit green on wealth managers - what do they give me, what is their USP?