Gilt Coupons - Always the same?

ChilliBob

Guys,
I'm aware of the coupons paid on gilts, how frequent they are, and the size of them. I just want to make sure I fully understand how purchase timing may impact this. 

So right now we're pretty close to the coupon date for lots of gilts - eg TN25, TN28 etc.. As I see it there's if you purchased today, you receive the same coupon amount, regardless of when you purchased.

https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/

But I just wanted to confirm that I've understood this correctly!

masonic

You would, but the dirty price you pay would include interest accrued to the date of purchase.

aroominyork

To add an example, TN25 pays out 0.25% (half of the annual 0.5%) on 22 April so we are now mid-way since the last coupon. If it is priced at £96, you would also pay half of the 0.25% that has accrued since 22 October so the price you pay - the dirty price - would be £96 + £0.25*50% = £96.125. You would then receive the full £0.25 coupon on 22 April.

ChilliBob

Thanks both, that's what I thought, and presumably this is based off the settlement date as opposed to transaction date? - So you could purchase on say Tuesday 30th for settlement on 1st. I notice on II it seems you can choose the settlement date too, within reason obviously!

wmb194

ChilliBob said:

Thanks both, that's what I thought, and presumably this is based off the settlement date as opposed to transaction date? - So you could purchase on say Tuesday 30th for settlement on 1st. I notice on II it seems you can choose the settlement date too, within reason obviously!

Gilts are T+1 so, if you bought on 30/01, it will settle on 31/01.

ChilliBob

As an example on TN28 - II gives me the option of T+2 - Which I have always stuck to. Interestingly if going for 5 or 10 you get this:

"Interactive Investor make a nominal additional charge on extended settlement purchases, and there may be an additional premium on the price charged by the market."

Surely that means, perhaps in my case on II, the settlement period is T+2 then? - Indeed looking at the gilts I have purchased this seems to be the case.

wmb194

ChilliBob said:

As an example on TN28 - II gives me the option of T+2 - Which I have always stuck to. Interestingly if going for 5 or 10 you get this:

"Interactive Investor make a nominal additional charge on extended settlement purchases, and there may be an additional premium on the price charged by the market."

Surely that means, perhaps in my case on II, the settlement period is T+2 then? - Indeed looking at the gilts I have purchased this seems to be the case.

That's weird but I guess that's II.

Hoenir

ChilliBob said:

Thanks both, that's what I thought, and presumably this is based off the settlement date as opposed to transaction date? - So you could purchase on say Tuesday 30th for settlement on 1st. I notice on II it seems you can choose the settlement date too, within reason obviously!

You'll pay for the stock immediately. The broker/platform undertakes the financial settlement. In the interim the money sits on deposit and the interest creamed off to the benefit of the platform. 

ChilliBob

I think I'll stick to +2 then! 

masonic

Extended settlement times can be useful if you have sold investments to fund the purchase that will not settle by the T+2 settlement of your purchase. It's important to keep an eye on settlements when trading between different types of asset, as they may have different settlement times. Most DIY platforms will not pre-fund switches, and some charge interest if they have to loan you the money while a settlement is in progress.

zagfles

HL use T+2 for all the gilts I've purchased. They also seem to prefund as I've sold funds which settle at T+4 and used the proceeds to buy gilts the day after the trade date of the funds (ie before settlement date).