5.375% Treasury Gilt 2056

poseidon1

DRS1 said:

poseidon1 said:

DRS1 said:

Stupid question but what will it cost?

Can you get £1 nominal for £1?

It would be and with no commission payable.

However my concern given its long duration is the possibility of it either  opening at a discount to face value when trading commences or moving to a  future discount dependent on perception of the quality of UK sovereign debt going forward.

For contrast TG40 ( Treasury 4 3/8 % 2054) can currently be bought for around 84.54p which converts into a approximate running yield of 5.17% subject to any accrued income at date of purchase.

Thank you.  That is much more informed than my worry that I will be dead before it matures.

You did have me worried by the TG40 reference - I thought I could rely on the numbers to represent the maturity year.  I think you mean T54 (same nominal yield as TG40 just lasts another 14 years although I am not sure as T54 has a yield of 5.55% but the price is right while TG40 is about 8p more expensive)

Sorry my error entirely. Should have been T54, but as you saw trading at a discount to par, the longer the duration the greater the discount.

Main risk with the new 5.375% gilt is therefore losing a bit of capital if you sell before redemption, but the relatively high guaranteed coupon could be considered compensation for that.

Nebulous2

You can buy existing ones at that kind of rate, with a shorter duration, and without having to go into an auction with an unknown price. 

UK Gilt Prices and Yields

Look at T45 for instance, offering 5.354% over 20 years if held to maturity. 

Pat38493

This caught my eye yesterday as well - I also read the help pages on the II web site and understood that actually, I don't know the price I will be paying in advance, so I don't know what the real rate of return will be, although they insist it will be a "good rate".

However didn't I also read on their help pages that this type of guilt is not traded on the open market so you can't sell it again early, or did I misunderstand that bit?

k6chris

Nebulous2 said:

You can buy existing ones at that kind of rate, with a shorter duration, and without having to go into an auction with an unknown price. 

UK Gilt Prices and Yields

Look at T45 for instance, offering 5.354% over 20 years if held to maturity. 

Thanks. I will dip my toes in the water and buy a small number to get a feel for how the theory works in practice. 

DRS1

k6chris said:

Nebulous2 said:

You can buy existing ones at that kind of rate, with a shorter duration, and without having to go into an auction with an unknown price. 

UK Gilt Prices and Yields

Look at T45 for instance, offering 5.354% over 20 years if held to maturity. 

Thanks. I will dip my toes in the water and buy a small number to get a feel for how the theory works in practice. 

Hopefully in an ISA or SIPP?

k6chris

DRS1 said:

k6chris said:

Nebulous2 said:

You can buy existing ones at that kind of rate, with a shorter duration, and without having to go into an auction with an unknown price. 

UK Gilt Prices and Yields

Look at T45 for instance, offering 5.354% over 20 years if held to maturity. 

Thanks. I will dip my toes in the water and buy a small number to get a feel for how the theory works in practice. 

Hopefully in an ISA or SIPP?

Yes, a SIPP

OldScientist

k6chris said:

ii are offering " early access to a new conventional gilt" as listed in the title.  As someone who has retired, the idea of something that pays over 5% for the next 30 years seems quite appealing.  What am I missing???

Thanks

Assuming the gilt will sell at par (given current 30 year gilt yields are 5.35%, then it will be close enough) then £100 invested will buy £5.375 per year income (in two six monthly instalments) for the next 30 years and will return you the capital of £100 after 30 years.

Risks:
1) Inflation will decrease the purchasing power of your income and capital
2) UK government default (given the UK has a sovereign currency the chance of this is fairly small, but not zero).
3) Where sale is required before 30 years elapse, if yields are greater than 5.375% at the time of sale the price will be below 100 (conversely, if yields are lower then the price will be higher than 100).

Taking natural yield from a fixed income security is one way of funding a retirement and has the benefit of being very simple to run.

k6chris

OldScientist said:

Taking natural yield from a fixed income security is one way of funding a retirement and has the benefit of being very simple to run.

This was my thought, live off the yield and leave the fluxuating capital in my estate.  I can square away risk of bond yeild rising against the relative certainty of the income coming in.  Also decouples my emotions from that of stock market rises (FOMO) and falls (panic). 

QrizB

You'll need to balance the likely value of your capital in 2056 vs. the increased income from an annuity. Per a recent thread, even a 55-yo would get a higher income from a level annuity than the gilt is paying.

https://forums.moneysavingexpert.com/discussion/6607133/annuity-rates-55-vs-65#latest

k6chris

QrizB said:

You'll need to balance the likely value of your capital in 2056 vs. the increased income from an annuity. Per a recent thread, even a 55-yo would get a higher income from a level annuity than the gilt is paying.

https://forums.moneysavingexpert.com/discussion/6607133/annuity-rates-55-vs-65#latest

Agree, but the gilt route allows you to revert back to capital (with risk of fluctation based on underlying bond rates) vs an annuity which is a one-way decision.  I think that is correct??