So What Should I do

deemy2004

There is a 4 1/8 index linked treasury stock 2030 that was issued 12th June 1992.   I cant see a 4 1/4 index linked but there are a few 4 1/4 convential gilts though, one of which expies 2036.  

It may come as no surprise to those that know, that you would face a capital loss on that index linked  gilt if held to the 2030 maturity date as it is currently priced at 208.1

On the convential gilt, you would have a small capital gain as its priced 96.0

My bad its 2030.... apologies. Doh, should know its sat at the core of my SIPP ! ::)

Your mistaken in your understanding of the way index linked Gov Stock works. For BOTH the VALUE of the BOND at Maturity AND the interest payments ARE index linked !

So on maturity the VALUE of the BOND WILL be HIGHER than where it is now, substantially higher ! - Well unless by a miracle the RPI goes negative for the next decade or so as against the 3.x% average over the last decade or so.

roll on higher oil prices and RPI

deemy2004

Ive just done some quick calcs using an 3% RPI, which calc to an maturity value of £300 (per £100 nominal stock) ! Thats near 50% capital gain on current prices

Now add the annual indexed interest payments on top of that.

I'm hoping that inflation falls next year, so the price of the bonds comes back down towards £2.00 so I can top up on even more of these beauties

dunstonh

You are correct about the index linking on the capital and coupon but to buy £100 of those gilts now would cost you £208.    If you bought them at issue, they were £204.

As the RPI figure for the 2030 4.125 issue is 135, you would need a RPI figure of 281 in 2029 to break even on a current purchase.  

Currently the RPI figure is 188.1 and thats 12 years after issue. Just over a quarter of the way there.

So its possible you may hit target but its quite probable that you would face a capital loss.      

edit: corrected an RPI figure.

Robert_Sterling_3

And why do that for someone in their 30s?  
Although nothing is impossible, it is highly improbable that they would get an average 0% return for 30 years.

On the cigarette packets it more or less says "Smoking Kills Lots of People and Shortens the lives of others".
People continue to smoke.

On Financial Advertisements it says more or less "Past performance is not necessarily a guide to future performance" and yet Financial Advisers say, on the basis of what happened in the past, what they think will happen in the future.

Bob Dylan sings "When we they ever learn? When will they ever learn?"

deemy2004

You are correct about the index linking on the capital and coupon but to buy £100 of those gilts now would cost you £208.    If you bought them at issue, they were £204.

As the RPI figure for the 2030 4.125 issue is 135, you would need a RPI figure of 564 in 2029 to break even on a current purchase.  

Currently the RPI figure is 188.1 and thats 12 years after issue. Just over a quarter of the way there.

So its possible you may hit target but its quite probable that you would face a capital loss.      

Hi

You still don't understand how they work. Your making fundemantal errors. You need to read up on the index linked bonds. As all I would do by replying is state that that THE CAPITAL will be at £300 on a 3% RPI at maturity, on top of which you get twice early INDEXED interest payments.

dunstonh

I was using the calculation set out on the Govt website for post 87 index linked gilts which says the redemption proceeds on maturity would be:

£100 x RPI for Nov 2029 / RPI for Oct 1991

The RPI figure for 1991 was 135.  The RPI figure for Nov 2029 is unknown.    So you cannot assume you are going to get back a specific amount.

If the Govt site is incorrect, then I apologise.

deemy2004

3% RPI compounded to maturity

How difficult is that to compute ?

dunstonh

3% RPI compounded to maturity

How difficult is that to compute ?

So are you saying that the Govt site on index linked gilts shows an incorrect calculation for redemption figures?

You are saying you get 3% rpi, whereas the Govt says you get:

£100 x RPI for Nov 2029 / RPI for Oct 1991

I cannot see any reference to 3% rpi for the capital redemption on the dmo.gov.uk website.

deemy2004

LOL

You just don't get it, or don't want to get it  ;D

I've explained already, twice, neigh thrice !

First you say subtantial capital loss - implying a 50% loss against the market price, then you say some capital loss, now your off on another tangent.

Now for a fourth time !

The facts remain the value of the bond will be higher at maturity than its current price. Using a 3% RPI (ESTIMATE) the value at maturity will be around £300 as against the present £206 ish.

Wait - let me check what the current RPI is 3.1% Sept 04

Since clearly your pretty stubborn in avoiding the facts, so now having spent some 5 mins searching for some official document to help you understand the bonds a bit better -

Heres something form the Bank of England -

http://www.bankofengland.co.uk/registrars/pdf/2002booklet.pdf

I refer you to page 15 (pdf page number, printed page 13) where it gives calcs and a figure of £299.62 based on an RPI of 3% Now THATS damn close to my own calcs of £300 !!  :D

Now if the Bank of Englands own calculations are not good enough for you, then I give up  ::)        ;D

Cheers !  :-*

dunstonh

I've explained already, twice, neigh thrice !

You havent explained anything.  You just keep referring to the fact you are going to get 50%.    There is no guarantee on the amount you are going to get back.   If you assume your RPI over the term then you are right but you are making assumptions.

Now if the Bank of Englands own calculations are not good enough for you, then I give up  

They are the same calculations i used in my earlier posts.

The facts remain the value of the bond will be higher at maturity than its current price.

There is no guarantee of that.   If there is a period of negative inflation then you could see a drop.  

They are not zero risk.  They are low risk.  That pdf mentions the potential for loss.

10 years ago, there hadnt been an endowment that had failed to hit target and provide surplus.   Who is to say we dont get negative inflation for a period in the future?

You are banking on there not being negative inflation and the RPI value at the end being above 281 to break even on a purchase price of 208. What if you have to sell them before redemption date and the price it not favourable?