Inflation Linked Gilt T30I. Is it worth it?

FT8

Is the ILG T30I worth it?

According to Gilts Yield:

• Par: £100
• Index ratio: 3.01776
• Accured interest: £1.014
• Clean price: £343.99
• Dirty price: £345.004

(£100 (par value) x 3.01776 (index ratio)) + £1.014 (accured interest) = £302.79

Difference between dirty price and above: £42.21.

Does this mean I'm paying a £42.21 premium or have I miss understood something?

hara____

That premium is the cost of the 4.125% coupon you'd get each year (minus the real yield, which will be small compared to this coupon).

If there were no coupon, yes, you might expect to pay about £302 for a real yield of close to zero.

But as the coupon is quite large, you'd pay that premium now, and as the gilt gets closer and closer to maturing, the premium will reduce.

hara____

The real yield is quoted at about 0.9% so you can think of the dirty price calculation as being:

Par value * index ratio * (coupon - real yield) ^ 4.25 years

Which is roughly 302*(1.032^4.25) = 345

As ever, the question with linkers is whether you are happy with the implied real yield, which is what the price of £345 is really telling you.

Gilts in Issue - T30I - giltsyield.com

FT8

https://forums.moneysavingexpert.com/discussion/comment/81970702#Comment_81970702

Thank you hara. That makes sense. At a marginal tax rate of 40% its a real loss. I'm glad I asked.

hara____

Yes, one to avoid in a taxable account. A better alternative would be TR31 as the coupon is only 0.125% so very little of the return is taxable. The current real yield is about 0.6%

https://giltsyield.com/bond/TR31/

masonic

T29 or TR31 would suit your circumstances much better, given the low 0.125% coupon.

FT8

Thank you @hara____ & @masonic .