Why do gilts mature at the weekend?

aroominyork

TG25 matures on 7 June, a Saturday. The corporate action notice issued by my platform reads "The 0.625% Treasury Gilt 2025 will be repaid at par on its maturity date of 9th June 2025." That presumably means I lose two days' interest. So why do gilts mature at the weekend... or have I answered my own question: so the Treasury can get a two day interest free loan?

TheGreenFrog

I suppose that as it was known at issue that redemption date was a Saturday, this would have been factored into the price set at auction.  

aroominyork

TheGreenFrog said:

I suppose that as it was known at issue that redemption date was a Saturday, this would have been factored into the price set at auction.  

Hmm.... that sounds like Treasury justification. But for someone buying on the secondary market it creates an inequity: a seller on Friday 6 June is not going to sell for par less three days' interest.

QrizB

Three days interest on a £100 nominal value 0.625% gilt is what, 0.005p? 50p on £1M?

aroominyork

QrizB said:

Three days interest on a £100 nominal value 0.625% gilt is what, 0.005p? 50p on £1M?

No. Yield is made up of coupon + capital gain. Coupon alone is meaningless. Base rate or typical easy access savings account is more appropriate to calculate lost interest. OH and I have £55k in TG25 so £55,000*4.25%/365*2 = £12.80. Not a fortune but I'd rather have it than not.

masonic

If the Treasury were to compensate you for a couple of extra days of interest, it would be at the level of the coupon because that is what they pay for the borrowings. The capital gain is a gift from valuation on a secondary market and reflects market consensus of what the income stream is worth. So the capital gain part will already reflect the 2 days lost interest when you buy on the secondary market. You are already receiving compensation for it, along with the low coupon rate, in the capital gain when you hold to maturity.

I doubt you'd be keen to pay £1.88 more for it to mature 2 days later for £1.88 additional taxable interest. Everything else is priced in.

TheGreenFrog

I would think that the technology used by traders dealing in very large quantities of gilts factor in the additional days - otherwise their YTM and other calculations will be slightly off.  The only people disadvantaged by these two extra days are those who are unaware of it.  Those who are aware but don't care, e.g. because the amount traded is small and so the amount "lost" is very small, cannot really be said to be disadvantaged as they were aware of the "feature".

aroominyork

Despite all those explanations/justifications, wouldn't it be sensible if Treasury not to have gilts mature at the weekend?

TheGreenFrog

aroominyork said:

Despite all those explanations/justifications, wouldn't it be sensible if Treasury not to have gilts mature at the weekend?

Yes agreed.  No idea what methodology they use to set maturity.  Blindfolded stick pin in calendar maybe.

aroominyork

So TG25 gilt matured on Saturday and the funds were in my Interactive Investor trading account on Monday… but ‘pending’. Only around 5pm were they cleared, so I missed the 2pm withdrawal deadline. This annoys me (when I raised it on this forum after the same happened in January with TN25, one poster said it’s so ii can earn an extra day’s interest) so I wrote to them. Reply: “The funds from your matured TG25 gilt have been credited to your account; however, they are currently showing as pending. This is because, while we have received the payment, it may still be undergoing final processing to ensure the funds are fully cleared. Typically, funds from matured gilts are credited to accounts as soon as we receive them, but they may take until the close of business on the same day to become available for withdrawal.” 

My account's transaction history shows the settlement date as Monday. Why could ii need to verify that the funds received from Treasury were not stuck in limbo? Before I write back to them – because I think this needs questioning – can people please tell me whether other platforms show cleared funds early or late on the day of a gilt’s maturity?

InvesterJones

I had the same bond with HL and iWeb. Funds weren't there at the very start of Monday. They appeared in HL the soonest, and were withdrawn* and in my current account very quickly, certainly before the end of the working day. They also appeared same day on iWeb and I could use it to buy another bond the same day (ie well before 16.30). Withdrawing some leftover funds on iWeb at the end of the day they appeared in my current account a couple of days later.

*apart from the final coupon payment, which because I already had an instruction to pay away, will take another month or so - coupon payments from HL are really slow - I would avoid them for this reason, I only bought in HL because there was an offer for zero fees.