Building a Bond Ladder

[YeeWo]

I'm 50, going to start drawing a DB Pension at 55, intend to carry-on working for as long as enjoyable/health holds-up, putting Salary into a DC Pension. As part of this, I am planning to draw-down my ISA pot on an annual basis to supplement DB Pension payments.

To plan this I'm thinking of starting to buy Gilts that mature in circa 5 years time.

Can a kindly-soul provide some advice on HMG issued Gilts that can be bought Today for Pennies with a Guaranteed Maturity Date at £1? Does such a thing exist? I have an HSBC InvestDirect AC for my ISA, it does have a Gilts Section but I realise how little I know on this subject! Alternatively if a UK-Centric book on the subject exists I'd be delighted with a recommendation!

[OldBoyReturns]

This site is a good resource for details of UK gilts in issue together with key metrics:

https://www.yieldgimp.com

If you will be buying in an ISA you will not be affected by the taxation play off between low coupon issues trading at a big discount to maturity value and higher coupon issues trading closer to maturity value.

[monabri]

I'm 50, going to start drawing a DB Pension at 55, intend to carry-on working for as long as enjoyable/health holds-up, putting Salary into a DC Pension. As part of this, I am planning to draw-down my ISA pot on an annual basis to supplement DB Pension payments.

To plan this I'm thinking of starting to buy Gilts that mature in circa 5 years time.

Can a kindly-soul provide some advice on HMG issued Gilts that can be bought Today for Pennies with a Guaranteed Maturity Date at £1? Does such a thing exist? I have an HSBC InvestDirect AC for my ISA, it does have a Gilts Section but I realise how little I know on this subject! Alternatively if a UK-Centric book on the subject exists I'd be delighted with a recommendation!

Hi YeeWo

There has been much recent talk on the subject of Gilts on TLF. Hopefully you might have seen the discussions..? If not, it might be worth having a shufty on the Gilts & Bonds board to familiarise yourself with the Gilts v Index Linked Gilt options.

If you are interested in the "plain vanilla" Gilts rather than index linked, then Dividend Data is a source
https://www.dividenddata.co.uk/uk-gilts ... -yields.py (complete with a bond yield calculator).


Walk Through on IL Gilts
viewtopic.php?p=604783#p604783

Building an IL Laddder
viewtopic.php?p=621213#p621213

There's more on the subject in the board.


HTH
monabri

edit: I'd aslo suggest a peruse of viewtopic.php?p=597837#p597837 : useful for the yield calculation "mechanics"

[daveh]

I'm 50, going to start drawing a DB Pension at 55, intend to carry-on working for as long as enjoyable/health holds-up, putting Salary into a DC Pension. As part of this, I am planning to draw-down my ISA pot on an annual basis to supplement DB Pension payments.

To plan this I'm thinking of starting to buy Gilts that mature in circa 5 years time.

Can a kindly-soul provide some advice on HMG issued Gilts that can be bought Today for Pennies with a Guaranteed Maturity Date at £1? Does such a thing exist? I have an HSBC InvestDirect AC for my ISA, it does have a Gilts Section but I realise how little I know on this subject! Alternatively if a UK-Centric book on the subject exists I'd be delighted with a recommendation!

Depends what you want and whether you want lots of capital gain and little or no coupon - so you pay (almost no tax) or whether you want a coupon?

I've built up a gilts ladder in blocks of £5000 TN24, TN25, T26, TN28, TG31 all have low coupons and when bought where showing a YTM of 4.2-4.75% pa equivalent (from an XIRR calculation) plus a small coupon of 0.125 to 0.25%. They were purchased at between 92p to 72p* each (plus accrued interest of 17p to £4.06 for each £5k worth (purchased over the last 3 months starting with the shortest date). The longer the date the cheaper the price.

I started looking for price info here:

https://www.hl.co.uk/shares/corporate-b ... s/uk-gilts

If you really want to pay pennies you need to go very long dated and I'd be dead before some of them matured and I couldn't guarantee the price I'd get as I'd be selling into the market not waiting for them to mature. Eg TG61 26p to buy today (plus accrued) will mature at 100p in 2061. Coupon is 0.5%, but that means the yield is ~4% per year just on the coupon so for me there would be tax to pay on the coupon*. With the ones I've chosen the coupon will be at most a few pounds a year on the £5k blocks and almost all the gain will be from a capital gain at maturity which is tax free. The other advantage of the short dated gilts is that bar a black swan event they aren't likely to get much cheaper than they are now and will generally move towards 100p as they get closer to maturity.

* I may buy some in my ISA next year, lets see what the situation is then.

[YeeWo]

Thank you to everyone for the responses, really delighted to read them. I have taken the plunge and bought TN28: -

Code: Select all

Date      | Type       | No.     | SP    | Price     | Fee    | XIRR flow   |     
30-Oct-23 | BUY        | 5916.42 | £0.84 | £4,957.01 | £41.80 |   £4,998.81 |     
31-Jan-24 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
31-Jul-24 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
29-Jan-25 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
30-Jul-25 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
28-Jan-26 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
29-Jul-26 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
27-Jan-27 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
28-Jul-27 | COUPON     |         |       |   -£36.97 |        |     -£36.97 |     
31-Jan-28 | CURR. VAL. |         |       |           |        | -£ 5,916.42 |     
          |            |         |       |           |        |       5.39% | XIRR


- That I will get £5916.42 back 31/1/28 may be reduced by platform fees.
- £36.97 twice yearly payment is based upon .015% Coupon.
- I'm happy enough with 5.39%pa guaranteed for the next 5 years.
- What does TN, TR, TG, TY actually stand for?
- Yieldgimp is fantastic........
- All held with an ISA wrapper so no tax liability whatsoever........

[Yieldy]

Well done.
Unfortunately on your calculation you have used a coupon of 1.25%, rather than 0.125% (the coupon of TN28). It makes a small difference to IRR - more like 4.29% per annum (as per YG..). However still beats most bank accounts/cash ISAs etc..

[shaunm]

Well done.
Unfortunately on your calculation you have used a coupon of 1.25%, rather than 0.125% (the coupon of TN28). It makes a small difference to IRR - more like 4.29% per annum (as per YG..). However still beats most bank accounts/cash ISAs etc..

Cash ISA's availablity - 1 Year Fixed Term
Royal Bank of Scotland 5.65%
Yorkshire Building Society 5.40%
Lloyds Bank PLC 5.45%
My reckoning is that due to the "Large amount" of UK & USA Government re-financing, interest rates will continue to stay
higher than what most are thinking, therefore I have parked money from Stock & Shares Isa's to Cash ISAs for the near future.
The rates above seem good to me - Will review November 2024

[monabri]

Won't you get a final coupon in Jan 28?

[GoSeigen]

- What does TN, TR, TG, TY actually stand for?

Nothing. They are just used routinely for gilts so that it's easier to recognise them than an arbitrary set of letters.

[Okay they are vaguely mnemonic as in "treasury" "treasury gilt" etc but that is not the prime consideration.]


GS

[88V8]

Cash ISA's availabilty - 1 Year Fixed Term....
My reckoning is that due to the "Large amount" of UK & USA Government re-financing, interest rates will continue to stay
higher than what most are thinking, therefore I have parked money from Stock & Shares Isa's to Cash ISAs for the near future.... Will review November 2024

You're probably right... but around the time cash rates start to move down, Gilts will start to move up so one runs the risk that the present buying opportunities will not be there...

V8

[shaunm]

Cash ISA's availabilty - 1 Year Fixed Term....
My reckoning is that due to the "Large amount" of UK & USA Government re-financing, interest rates will continue to stay
higher than what most are thinking, therefore I have parked money from Stock & Shares Isa's to Cash ISAs for the near future.... Will review November 2024

You're probably right... but around the time cash rates start to move down, Gilts will start to move up so one runs the risk that the present buying opportunities will not be there...

V8

100% in agreement with your thoughts, but perhaps being too hopefully, my toe has entered the water with a recent BP Pref share purchase
However, large numbers are cashing in/ transferring their uninvested cash balances within "Stock & Shares" ISA's to cash ISAs, this will continue to help to depress stock market prices, thus feeding more people to transfer to safer assets. Lloyds Bank has recently reduced their ISA rates for loyal customers from 5.45% to 5.2%, Lloyds has yet to acknowledge receipt of "transfer forms" for the family, which I believe according to recent financial report that they are "snowed under" as they have had lots of applications. YBS has in essence completed their paperwork, and with the RBS acknowledging receipt of transfer form.
We are paddling in difficult uncharted waters at the present moment, I suspect that the recent rise in US Treasury yields will cause some ruptures in the US banking system, with over debted companies (UK & US) to start showing themselves in 2024 (including my local Hotel & Spa!)

[OldBoyReturns]

I continue to reinvest surplus cash from coupons, tender offers and market sales immediately. My objective is maximising income from my bond, PIBS and pref investments rather than absolute value. So while there are yields of up to 8% available on fixed coupon PIBS and prefs and up to 12%+ on variable coupons issues I will keep gobbling them up. The number of idiosyncratic price movements of late has presented numerous relative yield switch trade opportunities and switching from an issue yielding 7% to one yielding 8% increases income by over 14%. It is amazing how they rack up over time if you keep your discipline.