Newbie bond question

[GeoffF100]

Short dated linkers may be of interest as they are trading close to par again. eg TREASURY 0.125% 22/03/2024. Unfortunately I cannot get an online price for these. I have never bought linkers, but my understanding is that the spread for retail investors is usually a little wider than for conventional gilts. HL onscreen prices are Sell:£98.32 Buy:£100.82, both before inflation adjustments.

They have to be dealt over the phone. With £50K T29 trades, I have usually got about 1/4 from mid-market with iWeb, but the last one was about 1/2 from mid-market. It may be better for shorter dates. Best buy currently seems to be TG36, but it is not a cash substitute:

https://uk.advfn.com/stock-market/londo ... shareprice

[mc2fool]

Short dated linkers may be of interest as they are trading close to par again. eg TREASURY 0.125% 22/03/2024. Unfortunately I cannot get an online price for these. I have never bought linkers, but my understanding is that the spread for retail investors is usually a little wider than for conventional gilts. HL onscreen prices are Sell:£98.32 Buy:£100.82, both before inflation adjustments.

They have to be dealt over the phone. With £50K T29 trades, I have usually got about 1/4 from mid-market with iWeb, but the last one was about 1/2 from mid-market. It may be better for shorter dates. Best buy currently seems to be TG36, but it is not a cash substitute:

https://uk.advfn.com/stock-market/londo ... shareprice

Ah, so the prices quoted for linkers are always without the inflation adjustments? And then you get a surprise when you try to trade them?

ii gives me "This instrument can only be traded via phone" for T29, TG36 and TR24 (hiriskpaul's one)

[gpadsa]

At x-o there was phone dealing only for TR24 & I asked for "10,000" which turned out to correspond to the nominal non-inflation-adjusted value in GBP. The contract note said it had cost me £150, I was very pleased with my bargain (they did a GBP/GBX mixup). Then a revised contract note came showing it had cost ca £15,000 (that is the inflation adjusted clean price, + a nominal accrued interest cost as that linker is only 1/8% coupon).

A steep learning curve

gpadsa

[hiriskpaul]

Ah, so the prices quoted for linkers are always without the inflation adjustments? And then you get a surprise when you try to trade them?

ii gives me "This instrument can only be traded via phone" for T29, TG36 and TR24 (hiriskpaul's one)

Usually without inflation adjustment, so yes, that could be quite a surprise!

Not sure about this one though: https://www.hl.co.uk/shares/shares-sear ... inked-gilt

[hiriskpaul]

At x-o there was phone dealing only for TR24 & I asked for "10,000" which turned out to correspond to the nominal non-inflation-adjusted value in GBP. The contract note said it had cost me £150, I was very pleased with my bargain (they did a GBP/GBX mixup). Then a revised contract note came showing it had cost ca £15,000 (that is the inflation adjusted clean price, + a nominal accrued interest cost as that linker is only 1/8% coupon).

A steep learning curve

gpadsa

Clean and non-inflation adjusted prices strikes me as more sensible as you can more easily tell whether the bond is trading at a premium or discount to par.

Hope you are happy with your purchase, even though you bought more than you were anticipating.

[mc2fool]

Ah, so the prices quoted for linkers are always without the inflation adjustments? And then you get a surprise when you try to trade them?

ii gives me "This instrument can only be traded via phone" for T29, TG36 and TR24 (hiriskpaul's one)

Usually without inflation adjustment, so yes, that could be quite a surprise!

Not sure about this one though: https://www.hl.co.uk/shares/shares-sear ... inked-gilt

Well, the LSE page for it says it was admitted on 13 December 2004 and this page says CPI then was 77.433 and is now (Jan 2023) 126.447, so an inflation uplift of 72%. If it's linked to RPI then this page gives us 189.0 then and 360.3 now, so a 90% uplift.

So, assuming it started at £100 then, yes, even after the inflation uplift, a price of ~£340 is ... yes, curious! Mind you, FWIW, the LSE page does give it a yield to maturity of minus 14%.

[hiriskpaul]

Ah, so the prices quoted for linkers are always without the inflation adjustments? And then you get a surprise when you try to trade them?

ii gives me "This instrument can only be traded via phone" for T29, TG36 and TR24 (hiriskpaul's one)

Usually without inflation adjustment, so yes, that could be quite a surprise!

Not sure about this one though: https://www.hl.co.uk/shares/shares-sear ... inked-gilt

Well, the LSE page for it says it was admitted on 13 December 2004 and this page says CPI then was 77.433 and is now (Jan 2023) 126.447, so an inflation uplift of 72%. If it's linked to RPI then this page gives us 189.0 then and 360.3 now, so a 90% uplift.

So, assuming it started at £100 then, yes, even after the inflation uplift, a price of ~£340 is ... yes, curious! Mind you, FWIW, the LSE page does give it a yield to maturity of minus 14%.

It looks like there was an additional auction in 2004 and they were priced way above £100 at that time. Original issue was in 1992. I suspect it trades on a superseded convention.

https://www.dmo.gov.uk/media/13388/pr210904.pdf

It represents a further tranche of 4⅛% Index-linked Treasury Stock 2030 first issued in June 1992; 4⅛% Index-linked Treasury Stock 2030 was last auctioned in January 2002.

ps just goes to show how we should never trust a quoted yield!

[GeoffF100]

The linkers are all uprated by RPI until 2030, when they are subsequently uprated by CIPH:

https://ehs.org.uk/index-linked-gilts-a ... nd-of-rpi/

The old style linkers had indexation built into the price. The Canadians introduced the new style linkers with clean and dirty prices and a three month indexation lag. The US then adopted them, and finally we did. There are evidently still some old style linkers around. I have traded them online, but not in recent years.

https://www.dmo.gov.uk/data/gilt-market ... ked-gilts/

[gpadsa]

Clean and non-inflation adjusted prices strikes me as more sensible as you can more easily tell whether the bond is trading at a premium or discount to par.

I agree. The way it is presented in the tradeweb.com table doesn't have the inflation-adjusted clean price but that is easy to calculate and anyway the TR24 coupon is so low it doesn't matter much, and easy to get into a spreadsheet for further number crunching/graphing

Hope you are happy with your purchase, even though you bought more than you were anticipating.

Yes I am glad I dipped a toe in after spending some time learning about gilts (mostly from LF posts, thanks all) intending to hold to maturity unless something interesting happens to the TR24 price. The dealer on the phone seemed to want me to ask to deal a number "10,000" but didn't seem very sure about currency, whether it was going to be GBP or GBX (probably the reason for the spurious contract note). Then I started worrying about whether the nominal value was going to be £1 or £100 because £100 x 10,000 would be wildly beyond my budget ... fortunately it all worked out & I had been expecting it to cost me about £15k as well

gpadsa