Anyone buying gilts right now?

incus432

I found it very useful but not used it so far into the future. Within a SIPP the income tax rate is zero and you should enter the interest rate your provider pays on cash holdings. The Cashflow tab shows you the workings

zagfles

CorseyEdge said:

I've been reading this thread with real interest, thank you. I'm looking to tidy up the defensive element of my SIPP (25%). I'm hoping to retire around the beginning of 2029/30 and I'm contemplating selling the real mixed bag of global bond funds, wealth preservers and MMFs I have gathered over the years and use the proceeds to build a small bond ladder to cover the first 3 FYs years at £10k/yr. That'll then hopefully provide some more certainty on return and also stop me tinkering with funds in that part of my portfolio. I'm still accumulating btw.

I 'think' that buying £8k of TG29, £8.4k of TR29 and £7.9k of TG30 should accomplish that £10k/yr. Those gilts are ~4.4% yield. Does that sound about right? Are these the right gilts - should I be considering IL Gilts instead or a mix?Appreciate any help - thanks again.

If they're intended to fund future spending then IL gilts would seem more appropriate as your spending requirements are likely to rise with inflation.

Obviously you don't know which will end up giving you the highest overall income, but if you were looking to take a risk to maximise income you probably wouldn't be looking at gilts in the first place. 

Alexland

zagfles said:
If they're intended to fund future spending then IL gilts would seem more appropriate as your spending requirements are likely to rise with inflation.

I agree if you hold them directly and align them with when you will need the money to spend on stuff that goes up with inflation such that you don't need to worry about how complicated the fluctuations in valuations can get along the way.

m_c_s

It's worth noting that UK inflation linked gilts will transition to CPI increases from Feb 2030 so this will impact future returns since RPI (currently used) is typically 1% higher than CPI.

cloud_dog

Can we take a step back to help me understand the cause of this current revision to yields. 

When Truss wiggled her magic fingers and caused the chaos a couple of years ago I could understand how that made the markets nervous etc, there was an obvious and logical link.

So without getting into politics, what have I missed that the current Government is planning / implementing / suggesting that has spooked the markets to the point that they are applying a higher risk weighting for our Gilts?

jimjames

cloud_dog said:

So without getting into politics, what have I missed that the current Government is planning / implementing / suggesting that has spooked the markets to the point that they are applying a higher risk weighting for our Gilts?

Certain areas of the media are focusing on the current Government but as far as I can see the reason is more to do with the USA than our actions. The strength of the US economy and latest jobs numbers as well as Trump meaning that interest rates there will come down slower than expected so US bonds in more demand so UK ones drop as a result.

CorseyEdge

zagfles said:

If they're intended to fund future spending then IL gilts would seem more appropriate as your spending requirements are likely to rise with inflation.

Obviously you don't know which will end up giving you the highest overall income, but if you were looking to take a risk to maximise income you probably wouldn't be looking at gilts in the first place. 

Thank you - yes it is for future spending, I 'think'? My aim is to extract ~10k/yr over the first 7 years of drawing down from my SIPP.  This is to feed my income focussed ISA whilst below HRT threshold, and to also to run down my SIPP as much as possible up to state pension age, where I will be a HRT payer due to a DB/Other floor.  

My SIPP is currently about 80/20 global equity to defensive. Whilst comfortable with the risk on equity side, I always seem unsure on the defensive side of where to invest - I have a mixed bag of Trojan, CGAR, STMMF, conventional & IL Global bond funds. To be honest I don't know why they're there, what they're doing, etc.

I've kind of realised that the overall aim was that 10k/year extraction - and that whilst I may be able to do it with 100% equity portfolio, I wanted to avoid market volatility and sequence of return risk - certainty for at least the first 3 years of drawdown anyway. Hence why I've focussed on a ILG ladder. If I buy the first 3 years now ~£30k - then my SIPP is back to 100% equity. I'm still adding to it over the next 4 years. 

Hopefully that doesn't sound too crazy! I'm now down a serious rabbit-hole of working through IL Gilt yield calculations on a collapsing 3 year ladder, and trying to determine if spending £28.9k today for 'guaranteed' index linked return of £30k is good value today.

Sorry to block up the thread - happy to start another thread to clean this one up - I feel I may have more questions. Thanks again!

Altior

When Truss wiggled her magic fingers and caused the chaos a couple of years ago 

So without getting into politics

That is quality to be fair

Notepad_Phil

jimjames said:

cloud_dog said:

So without getting into politics, what have I missed that the current Government is planning / implementing / suggesting that has spooked the markets to the point that they are applying a higher risk weighting for our Gilts?

Certain areas of the media are focusing on the current Government but as far as I can see the reason is more to do with the USA than our actions. The strength of the US economy and latest jobs numbers as well as Trump meaning that interest rates there will come down slower than expected so US bonds in more demand so UK ones drop as a result.

A lot of that is true, but the UK does seem to have suffered a hit to our borrowing costs that are greater than our other global peers during this period.

Altior

This is from an article a couple of months ago. The 'mini' budget in late 2022 was just a mere blip in 10 year UK gvnt bond yield upward trend. It happened in a 'perfect storm' of the Fed hiking rates, a domestic fuel energy crisis, political instability and the LDI crisis. As I posted elsewhere, the BoE were (quite unbelievably) also dumping gilts on the market.