Linkers Negative Yields Contract

[GeoffF100]

Index linked gilts had a real yield of about -3% recently. That is to say that you lost 3% to inflation for every year that you held them. Inflation has been rising, so you might have thought that there would be increased demand for linkers. Not a bit of it. The negative yields have shrunk to about -1.5%. Here is an article from the Chronic Investor:

https://www.investorschronicle.co.uk/ne ... rotection/

I bought my T29 when the yield was -0.1%, so it is easy come, easy go for me, provided that I hold to maturity.

[1nvest]

I see 20 year Index Linked Gilt yields are recently at -0.1% real yield levels.

A factor of course is whether your personal rate of inflation aligns/leads/lags the 'official' rate.

Tempted to buy some ILG's, but each such time I end up becoming confused and end up not bothering.

[Alaric]

I see 20 year Index Linked Gilt yields are recently at -0.1% real yield levels.

In money terms you would get around a compound 10% return if retail prices continued to increase at that sort of level. Recent issues pay next to no coupon, so almost all the return is at maturity.

[dealtn]

I see 20 year Index Linked Gilt yields are recently at -0.1% real yield levels.

In money terms you would get around a compound 10% return if retail prices continued to increase at that sort of level. Recent issues pay next to no coupon, so almost all the return is at maturity.

No, the return will accrue throughout the investment's life. Whether you choose to realise that or not is down to the investor not the investment.

[Alaric]

No, the return will accrue throughout the investment's life.

That would be subject to vagarities of market pricing. So you couldn't expect to hold for 5 years, say, of a twenty year issue and expect RPI for the period, even if it was priced at zero real return when you bought it.

[dealtn]

No, the return will accrue throughout the investment's life.

That would be subject to vagarities of market pricing. So you couldn't expect to hold for 5 years, say, of a twenty year issue and expect RPI for the period, even if it was priced at zero real return when you bought it.

Agreed, you are subject to market price movements. But that wasn't the point you made which was that "almost all the return is at maturity". It isn't. You get the (inflation uplift) return throughout its life, subject to the markets price at which you can sell it at.

[Alaric]

But that wasn't the point you made which was that "almost all the return is at maturity". It isn't. You get the (inflation uplift) return throughout its life, subject to the markets price at which you can sell it at.

The return is at maturity in the sense that there's no running income. That contrasts with a conventional Gilt where there's usually something by way of regulat coupon payment. It also contrasts with dividends from equities where there's at least a hope every year that the dividend will increase.

[GeoffF100]

But that wasn't the point you made which was that "almost all the return is at maturity". It isn't. You get the (inflation uplift) return throughout its life, subject to the markets price at which you can sell it at.

The return is at maturity in the sense that there's no running income. That contrasts with a conventional Gilt where there's usually something by way of regulat coupon payment. It also contrasts with dividends from equities where there's at least a hope every year that the dividend will increase.

The return is when you sell, not necessarily at maturity. The return at maturity is known, subject to indexation, but is dependent on the market before maturity, Gilts are not subject to CGT, but coupons are subject to income tax. You want the coupon to be as low as possible to minimise tax. For recent issues it is 0.125%, which is pretty low.

[dealtn]

But that wasn't the point you made which was that "almost all the return is at maturity". It isn't. You get the (inflation uplift) return throughout its life, subject to the markets price at which you can sell it at.

The return is at maturity in the sense that there's no running income. That contrasts with a conventional Gilt where there's usually something by way of regulat coupon payment. It also contrasts with dividends from equities where there's at least a hope every year that the dividend will increase.

Well we have different understandings of what is meant by the word "return" then if you hold that view.

In my opinion you have that (the inflation indexation return) return available at all times, and indeed can crystalise it whenever you want. You have no need to wait until the maturity. As expressed earlier, the decision to wait until maturity lies with the investor, and isn't to do with the investment.

[GeoffF100]

Here are the current BOE yield curves:

https://www.bankofengland.co.uk/statistics/yield-curves