Selling Gilts To Take PCLS

TCA

I'm 10 years short of state pension age (in 2035) and in all probability won't be earning much more to add to ISAs or pension.

2 years ago I constructed a gilt ladder in my SIPP, ostensibly to fund expenditure until state pension age, buying nominal bonds maturing from 2028 to 2036 with yields to maturity ranging from 4.5% to around 4.8% as duration increases. Half are low coupon so the profit is based on buying below par and holding to maturity and the other half have coupons of 4%+. I spent the same amount on each holding.  

The 2036 bond holding has an average yield of 4.4% as the main purchase wasn't at a great price and this is what I've added to with coupon interest from the other bonds.  

I've decided I may as well take the 25% tax-free lump sum now and just redeploy the cash into ISAs this year and next. I will likely just reinvest into gilts (at least for now) but will also take the opportunity to rearrange the maturities more in line with a revised spending forecast, generally selling earlier maturing bonds and replace with later maturing bonds.

What I can't get my head around is which gilts to sell in order to liberate the lump sum. When I look at current bond prices and factor in accrued interest and coupons received, the bonds maturing from 2028 to 2035 are showing profits of 11% to 14% in just over 2 years. The 2036 bonds are 4.5% up overall, but purchases were spread over the last two years. Current yield to maturity on T4Q (2036) is 4.6% (bought at 4.4%), on everything else the current YTMs are lower than when I bought.

Assuming I spend the sales proceeds on more gilts which I hold to maturity, does it make any difference to profitability whether I sell low coupon or high coupon gilts now? I'm thinking not, but the fact that the low coupon bonds will result in more cash proceeds (because of the bond price increase) is messing with my head.

Any pointers appreciated.

nakie999

You're overthinking it. Current price is irrelevant if you're buying-and-holding again. Match the new maturities to when you actually need the cash. That's your only real decision here