Re: 80% loss in 2 years on 'low risk' Index Linked Gilt
Posted: October 17th, 2023, 2:48 pm
Shares, Investment and Personal Finance Discussion Forums
https://www.lemonfool.co.uk/
mc2fool wrote:DrFfybes wrote:Currently they're £62 or so, so over the next 50 years the annual return will be roughly 1.5 x RPI (+ the nominal interest), as the RPI increase applies to the £100 Par value? ie - if inflation is 3% for the next 50 years the actual return if bought today would be nearer 4.5%?
The current unindexed price is around £62. Indexation applies/will apply to both the current price and redemption amount, so if you buy today then in 50 years time you'll be able to buy 100/62 = 1.613 times more gobstoppers than you could today, irrespective of the level of inflation (assuming gobstopper inflation is the same as the increase in the indexation ).
For yields it's best to think in real terms and you can use the unindexed values to get the real (post inflation) gross redemption yield.
=YIELD(TODAY(),"22-Mar-2073",0.125%,62,100,2,3) gives 1.13%
https://www.yieldgimp.com/index-linked-gilt-yields says that the current indexation ratio is 1.21794, so the indexed price is currently ~£62 * 1.21794 = ~£75.51, and the current coupon 12.5p * 1.21794 = 15.22p.
DrFfybes wrote:Thanks for that, you have confirmed I don't fully understand them. I can 'get' normal bonds/gilts, but the indexation is too much for my small brain.
From your reply and further reading since it seems the Actual Price one would pay to buy them today is the Market Price x indexation (plus any interest accrued since the last payment date?). I was going to ask "why not just quote the indexed prices?
DrFfybes wrote:The PAR value is £100, so why such a high initial high price - was it oversubscribed?