Long-dated Gilts as an investment

slinger2

I'm a long term saver/investor but I've never bought any Gilts until this week. As a bit of a punt I've bought some TG61 (matures Oct 2061, coupon 0.5%). Not in an ISA/Pension. This was first issued in May 2020 at a price of £96.87 but is now priced at about £22. Clearly a disaster for the initial investors but seems like a possible opportunity at the current price. I won't be around in 2061 but there's always a market for these, although of course there's no guarantee about the price.

I'm wondering what others think about this as an investment.

Altior

If you don't expect to see out the maturity then it's simply a bet on long gilt yields falling in the timeframe that you'll consider realising any gain. It's reflected in the price that you bought at obviously, but there is very little on the horizon that suggests that they will. A genuine sovereign debt crisis seems more likely.

GeoffTF

Gilts are priced in pence not pounds. TG61 is a massively risky investment. It is a hostage to inflation. It could come good if British governments stop spending more money than they collect in taxes. I would not want to bet on that.

poseidon1

I agree, a highly speculative investment which relies on this or future governments being able to:

1. Find some way to introduced sustained growth in the UK economy.
2. Curb and eventually reduce UK's ever rising debt mountain.

Obviously the ill conceived Iran war is an immediate impediment to either of the above objectives, but even if the war were to magically end tomorrow difficult to see what effective levers the present government has to improve matters on either front.

aroominyork

As you correctly say, "there's always a market for these, although of course there's no guarantee about the price." Could they go back to £22? On Pensioncraft they are nicknamed old man's crypto.

PixelPound

Prices fluctuate on long dated bonds. If not holding for maturity, then when until? Do you have deadline or is it a case of once the price is high enough or your estate deals with it.

The running yield of this is just under 2.3%, so it is just a gamble. You are really needing a big fall in interest rates to push this up

wmb194

As others have said with long dated gilts and bonds in general you're gambling on the inflation outlook. Outside an Isa or Sipp it might depend on how much tax you'd have to pay on the interest but if were doing this I'd go for one of the long dated issues that at least pays you to wait e.g., T53's running yield is about 4.5% pa.

https://giltsyield.com/bond/

redux

I'm a beginner at thinking about this. Someone check my arithmetic please?

(100÷22)^(1÷35) if I've got the sum right is 4.42 per cent annually to redemption

Add the coupon and call it almost 5 per cent (though of course the yield is not auto-reinvested)

If the market wants this to be one per cent higher the 22 price becomes 15.5. Or one per cent lower, 30

How many of those decent per cents are going to happen in the first few years?

Enzo_L

https://forums.moneysavingexpert.com/discussion/comment/82132805#Comment_82132805

Or T56 with a running yield of 5.82%:

https://www.dividenddata.co.uk/gilts.py?ticker=T56

PixelPound

All depends on where you think interest rates go long term.

You can get 5 year fixed rate bonds at 5.05%, so something like T56 will beat that currently. It also has the advantage of you being able to sell it before 5 years or keep it and continuing the 5.82%, where as for the 5yr bond renewal offers will be depending on the rate at the time.

The are downsides from what I see

• What you can sell the gilt for is not known, you are very much dependant on how the bond market is doing, so you could get less than you put in.
• No compounding. Coupons are paid out, where as a fixed rate bond compounds the interest. Yes you could use the coupon to buy more gilt, but the running yield might be different if the price has gone up.
• Long term stock market usually beats bonds and the average growth is often stated as 7-8%

Newbie_John

Also worth keeping in mind possible AI bubble correction, if this was to happen - rates would go down lifting the price of gilts.

So gilts can be used as a bet in that direction, personally I think there will be a big correction some time in the next 5 years..