Gilt Auction Treasury 4.375% 2028 - closes 12 November with HL

poseidon1

intalex said:

Anyone know of a broker who offers automatic reinvestment of the coupon into the GILT?

Probably not a good idea. TE28 currently trading at £100.68 ( to buy) and may creep up further as bank base rate falls.  Coupons reinvested at this level or higher will see a capital loss at redemption and lower ( marginally )  your overall return from the gilt. What's your rationale behind reinvestment of the coupon in this instance?

intalex

poseidon1 said:

intalex said:

Anyone know of a broker who offers automatic reinvestment of the coupon into the GILT?

Probably not a good idea. TE28 currently trading at £100.68 ( to buy) and may creep up further as bank base rate falls.  Coupons reinvested at this level or higher will see a capital loss at redemption and lower ( marginally )  your overall return from the gilt. What's your rationale behind reinvestment of the coupon in this instance?

You're right about re-investing at current prices as interest rates continue to drop, I was thinking more along the lines if there was an option to acquire the original units and at the same time acquire "future" units at the same original acquisition price, since the coupon cash flows are fixed and known from the outset, and so the equivalent number of units at the original acquisition price would also be known, so in theory the broker could pre-acquire those "future" units, hold them on their own books (and enjoy their corresponding interim coupon) and then transfer them to the principal acquirer in exchange for the coupon "cash"... kinda like an accumulation gilt... probably missing something in my thinking... I guess I'll look for other options for the coupon cash and annual contribution top-ups.

InvesterJones said:

intalex said:

Anyone know of a broker who offers automatic reinvestment of the coupon into the GILT?

HL, iWeb.. probably most others too.

Hmm... AJ Bell don't and require manual acquisition each time, including paying a trade fee each time, which further erodes the returns.

Hoenir

intalex said:

I was thinking more along the lines if there was an option to acquire the original units and at the same time acquire "future" units at the same original acquisition price, since the coupon cash flows are fixed and known from the outset, and so the equivalent number of units at the original acquisition price would also be known, so in theory the broker could pre-acquire those "future" units, hold them on their own books (and enjoy their corresponding interim coupon) and then transfer them to the principal acquirer in exchange for the coupon "cash"... kinda like an accumulation gilt... probably missing something in my thinking...

Total non starter

poseidon1

intalex said:

poseidon1 said:

intalex said:

Anyone know of a broker who offers automatic reinvestment of the coupon into the GILT?

Probably not a good idea. TE28 currently trading at £100.68 ( to buy) and may creep up further as bank base rate falls.  Coupons reinvested at this level or higher will see a capital loss at redemption and lower ( marginally )  your overall return from the gilt. What's your rationale behind reinvestment of the coupon in this instance?

You're right about re-investing at current prices as interest rates continue to drop, I was thinking more along the lines if there was an option to acquire the original units and at the same time acquire "future" units at the same original acquisition price, since the coupon cash flows are fixed and known from the outset, and so the equivalent number of units at the original acquisition price would also be known, so in theory the broker could pre-acquire those "future" units, hold them on their own books (and enjoy their corresponding interim coupon) and then transfer them to the principal acquirer in exchange for the coupon "cash"... kinda like an accumulation gilt... probably missing something in my thinking... I guess I'll look for other options for the coupon cash and annual contribution top-ups.

InvesterJones said:

intalex said:

Anyone know of a broker who offers automatic reinvestment of the coupon into the GILT?

HL, iWeb.. probably most others too.

Hmm... AJ Bell don't and require manual acquisition each time, including paying a trade fee each time, which further erodes the returns.

Assuming what you are seeking is even possible, can't see plain vanilla DIY investment platforms  being able to assist. Sounds like you are after a species of put/call options which would be way outside their ambit.

As for automated reinvesting of coupons, i suspect none of the platforms offer it for gilts or any interest bearing single company bond.

Each platform will have a specific  date each month when they conduct the purchases. With any interest bearing security this would mean calculating the purchase of an element of accrued income as well as the gilt/ bond units ( the 'dirty price') so a little more complex than buying ordinary shares.

 In this regard I notice Interactive Investors who I use and who do offer dividend reinvestment, do not include any of my corporate bonds in the list of  eligible securities.

intalex

Maybe the Government should introduce compounding versions of Gilts then, since they better suit restricted access investment pots such as SIPPs and LISAs... basically, accrue coupon daily at the full-term equivalent gross rate and credit at maturity...

zagfles

intalex said:

Maybe the Government should introduce compounding versions of Gilts then, since they better suit restricted access investment pots such as SIPPs and LISAs... basically, accrue coupon daily at the full-term equivalent gross rate and credit at maturity...

Gilt strips seem to effectively do that. I don't really understand them, as they appear to offer unrealistically high returns for short term ones so I must be missing something. The taxation is different too if held unwrapped, think the gain counts as income.

OldScientist

poseidon1 said:

intalex said:

Anyone know of a broker who offers automatic reinvestment of the coupon into the GILT?

Probably not a good idea. TE28 currently trading at £100.68 ( to buy) and may creep up further as bank base rate falls.  Coupons reinvested at this level or higher will see a capital loss at redemption and lower ( marginally )  your overall return from the gilt. What's your rationale behind reinvestment of the coupon in this instance?

While you are correct that a decrease in yields since the original purchase means that coupon reinvestment will lead to a reduction in the overall yield (or return) calculated at purchase, there are limited choices:
1) Reinvest in TE28
2) Wait to reinvest in TE28 until interest rates rise again (if that happens) - in the meantime the cash has to sit somewhere.
3) Invest the coupons in something else (equities, a different bond, etc.)
4) In retirement, spend them.

Gilts with lower coupons have more certainty in total returns - buying zero coupon gilts (i.e., STRIPS, where the principal and coupons are separated) is the only way of providing complete certainty in future returns.

I note that iweb do not do automatic reinvestment of coupons.