Vanguard Life Strategy

Secret2ndAccount

https://giltsyield.com/bond/inflation/

The 2034 pays +1.5% if you can wait that long.  1/8% is a rare beast though. You are going to get a bit more coupon.

tigerspill

Secret2ndAccount said:

https://giltsyield.com/bond/inflation/

The 2034 pays +1.5% if you can wait that long.  1/8% is a rare beast though. You are going to get a bit more coupon.

Thanks again.
Is it the TRTQ ILG that you refer to here maturing in 2034 - https://giltsyield.com/bond/TRTQ/

Secret2ndAccount

Look in the 'Real Yield' column.  Or the 'Net Real Yield' column, which knocks 20% tax off the coupons. (You can adjust the tax rate on the front page if you need to)

tigerspill

Secret2ndAccount said:

TR31, yes.  It was born in 2021, notionally at £100. Since then, inflation is 38.5%  So the price today should be £138.50, but it isn't: it's only £131.60.  So if you buy it today and hold, you are locking in a gain of about £7.  Suppose inflation was zero for the rest of the term. All the numbers stay the same. You get back £138.50 and make £7 on an investment of £131.60 in 5.7 years. That's 5.3% in 5.7 years. But you also get a bit of coupon. 1/8% of £138 each year. Add that in and you have 6% in 5.7 years - a return of approx 1% per year. If inflation is more than zero, the final payout and the coupon payments increase to keep pace, so you still get to keep the 6% gain.

If you choose to sell before the term ends, you might get back more or less than you would expect due to market fluctuation. However, you would expect the value to gravitate towards the calculated final sum as you get nearer to the maturity date. In general, you would expect a gradual increase so you can get your money out if you need to.

Still trying to get my head around ILGs.

So if I try to apply the same calculations for the TRTQ ILG born in May 2011 and maturing in March 2034.
Clean price today is £94.78 which seems less than original price;  Dirty price is £166.03 (I assume this is the price with the inflation added on to the £100 from issue date??);  With inflation applied, then the prove should be £174.  Therefore this seems like a good buy if holding to maturity.  So locking in a gain of £8 for 9 years - so around 0.9% per year locked in.  Plus a coupon of 0.75% per year.  So in essence a return of 1.65% above inflation if holding to retirement. All ignoring tax as having looked I can do this in an ISA.
Have I got this right?

If I can use an ISA, does this mean I should be less worried about ILGs with a bigger coupon?


Also, looking at T33, this seems to give a yeild of 3.167% - is this above inflation?);  Does this not seem like very good value?  Or what am I missing in my understanding?

hara____

Your understanding is about right but you can just work from the clean price. If it's below 100 you know the real yield is greater than the coupon.

With TRTQ you know the clean price will rise to 100 at maturity, giving you a real yield of about 0.65% because 94.7*1.0065^8.5yrs = 100 and then you also get the coupon of 0.75% to give a total real yield of about 1.4%

The true calculation is more complicated than the above, but this simple approach is often good enough for a rough understanding.

The yield for T33 is similar, for the same reasons. See: https://www.dividenddata.co.uk/index-linked-gilts-prices-yields.py

The only issue is that you need to be prepared to accept any volatility between now and maturity. With linkers of about 8 or 9 year duration, that volatility can be material.

tigerspill

hara____ said:

Your understanding is about right but you can just work from the clean price. If it's below 100 you know the real yield is greater than the coupon.

With TRTQ you know the clean price will rise to 100 at maturity, giving you a real yield of about 0.65% because 94.7*1.0065^8.5yrs = 100 and then you also get the coupon of 0.75% to give a total real yield of about 1.4%

The true calculation is more complicated than the above, but this simple approach is often good enough for a rough understanding.

The yield for T33 is similar, for the same reasons. See: https://www.dividenddata.co.uk/index-linked-gilts-prices-yields.py

The only issue is that you need to be prepared to accept any volatility between now and maturity. With linkers of about 8 or 9 year duration, that volatility can be material.

Thank you for this.  So my plan would be to hold these to maturity.  The only issue that might cause premature sale might be death I suppose.

One re question - what is the difference between those labeled Treasury Gilts and Treasury Stock?

hara____

I'm not certain but it appears the use of 'stock' is linked to when the bonds were issued, so just different conventions at different times.

I can also recommend the Monevator articles on linkers, such as this one, which points out that some platforms still don't provide accurate dirty pricing in portfolio views: https://monevator.com/how-to-buy-index-linked-gilts/

Secret2ndAccount

tigerspill said:

So if I try to apply the same calculations for the TRTQ ILG born in May 2011 and maturing in March 2034.
Clean price today is £94.78 which seems less than original price;  Dirty price is £166.03 (I assume this is the price with the inflation added on to the £100 from issue date??);  With inflation applied, then the prove should be £174.  Therefore this seems like a good buy if holding to maturity.  So locking in a gain of £8 for 9 years - so around 0.9% per year locked in.  Plus a coupon of 0.75% per year.  So in essence a return of 1.65% above inflation if holding to retirement. All ignoring tax as having looked I can do this in an ISA.
Have I got this right?

If I can use an ISA, does this mean I should be less worried about ILGs with a bigger coupon?


Also, looking at T33, this seems to give a yeild of 3.167% - is this above inflation?);  Does this not seem like very good value?  Or what am I missing in my understanding?

You've got this almost right - there is one thing that needs fixing. Closer to 8 yrs than 9, so call it £8 in 8 yrs. That's not 1%. You paid £166. So it's £1 per £166 per year. Or 1/1.66 = 0.6%. Add .75% and you get 1.35%
Giltsyield has it at 1.42% - you can normally trust their numbers.

No tax on the coupons inside the ISA, so you can choose widely. Just make sure you don't let a load of cash pile up in your account without getting some return on it.

Lots of prices appear glitchy at the moment. Need to confirm if you can actually get those prices when the market is open. I suspect if the price is that good (or bad) it means nobody is selling enough of that gilt at the moment to fulfil your order. Bonds are not as heavily traded as stocks; a lot buy-and-hold going on. So there can be a bit of illiquidity there. Those prices look actually wrong to me though, because they all point to a predicted inflation rate of zero.

hara____

Secret2ndAccount said:

Lots of prices appear glitchy at the moment. Need to confirm if you can actually get those prices when the market is open. I suspect if the price is that good (or bad) it means nobody is selling enough of that gilt at the moment to fulfil your order. Bonds are not as heavily traded as stocks; a lot buy-and-hold going on. So there can be a bit of illiquidity there. Those prices look actually wrong to me though, because they all point to a predicted inflation rate of zero.

Can you expand on your last point? Implied inflation is around 2.5% if you compare 10yr nominals and linkers.

Secret2ndAccount

This morning, with the markets open, all the prices are back to normal. Last night, when tigerspill asked, and I answered, there were some very odd prices showing for some gilts. As you are aware, you can compare an ILG to a conventional gilt and get an expected rate of inflation. If you did this for the glitchy prices, you didn't get some random value for inflation; you got zero each time. This led me to conclude that there must be a bug in the system somewhere.
All sorted now