Apparent large loss after buying index linked gilt

incus432

Just bought a tranche of TR26 IL gilt (22/3/26, 0.125%) on iweb and it is showing an immediate loss of 35%. Buy price was 154 rather than the clean 99.4. Managed to stay calm - just.

I have only boiught conventional gilts before and the apparent loss was much smaller and it is easy to see how it represente interst payments but this seems in excess of any expected coupon payments?

I saw that @zagfles last year posted on another thread saying this was a glitch in the way platforms display info (clean vs dirty price) but can someone explain why the difference is so large and how and when this apparent loss vanishes? Yieldgimp mentions 'Settlement Index ratio' but I cant find a clear explanation of this. 

Reg_Smeeton

I hold index linked gilts with HL and mine also display as big losses, as you say due to discrepancy between clean and dirty prices. 

I don’t think it will ever disappear as such, I just do my own valuations from the ILG prices at Tradeweb. You’ll have your trade notes outlin8ng purchase price and units held, no need to panic!

Hoenir

Tradeweb only publishes market closing prices on noon of the following trading day. 

Difference between clean and dirty price is accrued interest plus the inflation uplift. Will vanish when the stock reaches maturity or you dispose of it. 

Worth noting that in 2030. Inflation uplift will drop from RPI to the lower CPI measure. 

SnowMan

The dirty price that you paid takes into account that you are not just buying £100 nominal of the TR26 but you are also buying the indexation (i.e. RPI increase) that has already taken place from when it was issued in July 2015 until now. This diagram shows this (based on yesterday's official closing price and assumed settlement today)

When the ILG matures on 22/3/2026 you will get back £154.68 per £100 nominal purchased adjusted for the change in RPI from now to 22nd March 2026 (lagged by 3 months), and you will get two interest payments (coupons) on 22/9/2025 and 22/3/2026. 

af1963

Have you bought it within a SIPP ? If so, you might also want to follow this ongoing thread, and maybe check how your provider handles the same situation  ...

https://forums.moneysavingexpert.com/discussion/6603801/interactive-investor-calculation-of-25-tax-free-cash-when-holding-index-linked-gilts#latest

Short summary: for at least some providers ( ii in the thread above), if you want to withdraw your 25% tax free cash while still holding some index linked bonds, they will calculate your account value, and TFC entitlement, based on the lower "clean" price. So if you were fully invested with £100k in IL bonds at the dirty price and expecting £25k TFC, you might only get 25% of the clean price of around £65k instead, giving you just £16k or so. 

incus432

SnowMan said:

The dirty price that you paid takes into account that you are not just buying £100 nominal of the TR26 but you are also buying the indexation (i.e. RPI increase) that has already taken place from when it was issued in July 2015 until now. This diagram shows this (based on yesterday's official closing price and assumed settlement today)

When the ILG matures on 22/3/2026 you will get back £154.68 per £100 nominal purchased adjusted for the change in RPI from now to 22nd March 2026 (lagged by 3 months), and you will get two interest payments (coupons) on 22/9/2025 and 22/3/2026. 

Beautiful clear explanation - thank you. Where does that graphic come from?

There must be a way for platforms to show this.

af1963 said:

Have you bought it within a SIPP ? If so, you might also want to follow this ongoing thread, and maybe check how your provider handles the same situation  ...

https://forums.moneysavingexpert.com/discussion/6603801/interactive-investor-calculation-of-25-tax-free-cash-when-holding-index-linked-gilts#latest

Short summary: for at least some providers ( ii in the thread above), if you want to withdraw your 25% tax free cash while still holding some index linked bonds, they will calculate your account value, and TFC entitlement, based on the lower "clean" price. So if you were fully invested with £100k in IL bonds at the dirty price and expecting £25k TFC, you might only get 25% of the clean price of around £65k instead, giving you just £16k or so. 

No - I have bought within a GIA having already maxxed out my ISA (20k) and SIPP (2880 net), but thanks for the info

SnowMan

incus432 said:

Where does that graphic come from?

I came up with it myself. The figures feed in from an excel spreadsheet I have to monitor the true valuation of my own index linked gilts, based on the tradeweb official data.

Hoenir

SnowMan said:SnowMan said:

When the ILG matures on 22/3/2026 you will get back £154.68 per £100 nominal purchased adjusted for the change in RPI from now to 22nd March 2026 (lagged by 3 months), and you will get two interest payments (coupons) on 22/9/2025 and 22/3/2026. 

For clarity worth noting that Index-linked gilts issued before 2005 have an 8-month indexation lag. Only those post 2005 have a 3-month indexation lag. 

FIREDreamer

I bought some ILG in an ISA with comdirect (obviously a long time ago).

The portfolio on the screen never showed a large loss compared to its purchase price. So comdirect could cope with the correct valuation on them.

I will need to dig through my records to see what these were.

DRS1

FIREDreamer said:

I bought some ILG in an ISA with comdirect (obviously a long time ago).

The portfolio on the screen never showed a large loss compared to its purchase price. So comdirect could cope with the correct valuation on them.

I will need to dig through my records to see what these were.

Could be you had the 8 month ones mentioned by @Hoenir.  For some reason they don't have the same clean/dirty price display problem as the newer ones.

leosayer

Private investors are buying far more gilts than they have done historically, seemingly due to increased yields in recent years.

Investment platforms need to play catchup given this demand and whilst I have seen some move from telephone-only dealing to online, clearly more needs to be done regarding valuation.

This isn't a problem for institutional investors who will have their own trading and valuation platform such as Bloomberg which won't have these problems.