Bond Yields Long term

af1963

https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

...is a page I've found useful after someone highlighted it in a discussion here.  Shows the prices, coupons, and yield to maturity on conventional and indexed gilts.

A few years ago, the yield to maturity on many bonds was tiny, or even negative, so that buying and holding them until they matured would have guaranteed an overall loss. (But would have insured against the possibility of a larger loss in other investments)

Yields are now positive and mostly above current inflation.  Real yields on indexed gilts are also now positive.

Click on the arrow icon at the end of each row to see much more detail, including charts of the history of prices and yields.

k6chris

Dumb question(s) time:  Can you buy these gilts in a SIPP, if so what am I looking up?   I assume the 6 months payments go into your SIPP like a dividend does and then you pay your marginal rate of tax when you draw down??  If the economy / outlook improves and long term gilt rates fall, then the value of the underlying gilt may rise, but the interest payment remains the same??  So may questions!!

Secret2ndAccount

You can hold them in a SIPP, and the coupon payments go into your SIPP's cash balance tax free.
The coupon rate is fixed - a payout per bond every 6 months. It doesn't matter what the live, floating market price of the bond is. If the price of the bond were to halve, and you bought some at half price, you would be getting twice as much coupon for the same money invested. So you might (and should) view the interest rate yield as having doubled, but the payout per bond remains the same - you just bought twice as many bonds with your money.

af1963

k6chris said:

Dumb question(s) time:  Can you buy these gilts in a SIPP, if so what am I looking up?   I assume the 6 months payments go into your SIPP like a dividend does and then you pay your marginal rate of tax when you draw down??  If the economy / outlook improves and long term gilt rates fall, then the value of the underlying gilt may rise, but the interest payment remains the same??  So may questions!!

On the bond prices page, each bond has an EPIC code - that's what you'd look up on your platform.
https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

There are complications related to "clean" and "dirty" prices, which you can read up on. ( "dirty" accounts for things like accrued entitlement to coupon payments, and indexation to date.)

Particularly for index linked gilts, these can be substantially different.  Platforms will often list the "clean" price even though it's actually the higher "dirty" price you will pay or receive if you trade.  On some platforms, you need to trade by phone, again especially for indexed gilts.

Nebulous2

Some SIPPs allow them, some don't. Fidelity doesn't. I moved to Charles Stanley, partly for cashback, but part of the attraction was that you can hold gilts. They can't be bought online however, you have to phone. 

I bought a 20 year gilt on a 5.3% yield to maturity. Obviously I'm hoping at some point before then the price will rise - they've dropped slightly since I bought them, but I'm in no hurry. I wouldn't want to be a forced seller in the current market.... 

leosayer

I've been following the price of TR43 Treasury 4.75% 22/10/43 for some time.

I find it compelling because the maturity is 'only' 18 years away and it offers annual interest payment over 5%. For example, if I buy £20,000 worth, I get interest of £511 every 6 months.

However, I find it hard to justify why I would hold this. It doesn't fit in my low risk 'bucket' because the price can be volatile. It doesn't fit in my high risk bucket because the long term returns are expected to be lower than equities.

grumpsthegit

k6chris said:

Dumb question(s) time:  Can you buy these gilts in a SIPP, if so what am I looking up?   I assume the 6 months payments go into your SIPP like a dividend does and then you pay your marginal rate of tax when you draw down??  If the economy / outlook improves and long term gilt rates fall, then the value of the underlying gilt may rise, but the interest payment remains the same??  So may questions!!

This thread may be of interest perhaps :

https://forums.moneysavingexpert.com/discussion/6621223/government-bonds-v-annuity#latest

Lowtrawler

leosayer said:

I've been following the price of TR43 Treasury 4.75% 22/10/43 for some time.

I find it compelling because the maturity is 'only' 18 years away and it offers annual interest payment over 5%. For example, if I buy £20,000 worth, I get interest of £511 every 6 months.

However, I find it hard to justify why I would hold this. It doesn't fit in my low risk 'bucket' because the price can be volatile. It doesn't fit in my high risk bucket because the long term returns are expected to be lower than equities.

As a private investor, unless you want to speculate on the bond market, you should only be purchasing gilts you expect to hold to maturity. This gives you a guaranteed return and cash flows. It becomes the lowest of low risk investments. Your main risk buying a long-term conventional gilt becomes inflation as that erodes the "real" value of those cashflows. Of course, you can purchase a similarly dated index-linked gilt which eliminates the inflation risk and where the cash-flows / final value retain their "real" value but most index-linked gilts have low coupon rates and so don't provide the same level of income unless created as a gilt ladder.