Long Term IL Gilts

Hatvany

I am thinking of buying  

1/8% IL TREASURY GILT 2068.  The current price is

63.43 GBP

I am 22 years old and plan to hold these until maturity - when I will be aged 66.
Am I correct in thinking these will be redeemed at 100 - a profit in excess of 50% over inflation, as they are linked to the RPI (changing to the CPI)?
This seems too good to be true...

Mark_d

Rather than interest on your investment, you get a coupon of 1/8 %.  Even with a redemption value of £100 I can't see why you find these attractive.  Am I missing something?

RumRat

I guess you would get a better and more informed answer from the correct forum.
Maybe the mods would move it for you.

GDB2222

Hatvany said:

I am thinking of buying  

1/8% IL TREASURY GILT 2068.  The current price is

63.43 GBP

I am 22 years old and plan to hold these until maturity - when I will be aged 66.
Am I correct in thinking these will be redeemed at 100 - a profit in excess of 50% over inflation, as they are linked to the RPI (changing to the CPI)?
This seems too good to be true...

I haven't checked the exact issue date, but I think those bonds were issued around 2013. The redemption price will be 100 increased from 2013 to 2068. The current redemption price, were it redeemable now, would be around 155. That's to say that the RPI inflation since 2013  has been around 55%.

So, ignoring the tiny annual interest payment of 1/8%, the return payable in 2068 on an investment at 67 (the current price) would be 2.3 times your investment plus any future inflation increases. However, that 2.3 times is spread over 44 years, and it equates to an annual growth rate of 1.9%. 

So, adding in the tiny interest payment, the return on this bond is just over 2% pa, plus the future inflation proofing. That's okay for an investment that's very low risk, and which you can squirrel away and forget about for over 40 years. 

If you are prepared to take the risk, the return on a broad spread of equities (through a tracker fund) may be significantly higher. 

And, I agree with @RumRat this would be better on an investment board.

John_Gray

Are you an insurance company or a pension fund?

These are the organisations which tend to buy gilts, because they need to have a proportion of their portfolios in very stable funds.

Non-commercial investors in gilts are rather rare...