UK opens up gilts sales to retail investors

[formoverfunction]

Article in the FT today, Winterflood is going to be working with Hargreaves Lansdown and Interactive Investor to allow retail invetsors to participate in the primary market.

According to the article both have started accepting orders and retail investors will not have to pay any dealing charges, and will get the average price of the auction.

The first auction taking place on the 28th, with a 4% coupon.

I haven't been able to find the relevant pages on either sites.

[formoverfunction]

https://www.ii.co.uk/ipos

They will be publishing the subscription form later today.

From what I understand, this will also be avialable inside tax shelters.

[formoverfunction]

https://www.cityam.com/gilts-opened-up- ... of-demand/

retail sector "asked to finance £206bn from private investors this year before rising to £237bn next year."

[Alaric]

retail sector "asked to finance £206bn from private investors this year before rising to £237bn next year."

ii now have the new Gilt under the IPO tab.

[formoverfunction]

United Kingdom Debt Management Office (DMO)

https://www.dmo.gov.uk/calendars/issuance-calendar/

"The issuance calendar for each financial year is published in March. When published, the calendar simply specifies the auction dates for the whole financial year and whether an auction on a particular date will be of a conventional or an index-linked gilt, but it is updated on a quarterly basis to give the identity of the gilts to be auctioned on specific dates once this has been announced."

This may be useful if the auctions look interesting. It might help with planned deployment of capital and balancing competing opporturnites.

The DMO site also shows the price of recent auctions, yield etc which could give an indication of what to exepect.

[daveh]

The 27th Feb Auction might be interesting. Wondered if more low coupon gilts would be issued and it looks like they will be. Have to have a look at the II site to see how it works, as I'd not want to overpay. At least if you buy in the market you know (~) the price you will pay.

[formoverfunction]

Result of the last auction: 4% Treasury Gilt 2031 New Issue

Issue price (per £1 Nominal): 99.44 pence*
Minimum investment:£1,000 (multiples of £100 thereafter)
Maximum investment: £500,000
Interest rate: 4%
Maturity date: 22 October 2031

* The price paid per unit was the average accepted price for the gilt during the auction.

I was wondering when the next one might be coming around, the DMO will publish a new calendar in March 24, so this is last years.

https://www.dmo.gov.uk/media/jdwfhfrl/a ... 040124.pdf

I am guessing the word we new to keep an eye out for in 24/25's is going to be "new" (as is New Oct 2031) for participation.

[GoSeigen]

The 27th Feb Auction might be interesting. Wondered if more low coupon gilts would be issued and it looks like they will be. Have to have a look at the II site to see how it works, as I'd not want to overpay. At least if you buy in the market you know (~) the price you will pay.

What does a "low coupon" mean? Gilts are generally issued at par value so the coupon will match the yield. I don't know of any recent discounted issues, but could be wrong.


GS

[gpadsa]

What does a "low coupon" mean?

Presumably 1/8% or 1/4% coupon, convenient for retail investors who aim for tax-free capital gain at the expense of coupon income (if holding to maturity).

gpadsa

[londoninvestor]

The 27th Feb Auction might be interesting. Wondered if more low coupon gilts would be issued and it looks like they will be. Have to have a look at the II site to see how it works, as I'd not want to overpay. At least if you buy in the market you know (~) the price you will pay.

What does a "low coupon" mean? Gilts are generally issued at par value so the coupon will match the yield. I don't know of any recent discounted issues, but could be wrong.


GS

For new issues, the aim usually is indeed to issue at approximately par value, so the coupon is set to the approximate expected yield like you say.

However, the DMO can also "reopen" an issue, i.e. auction a new tranche of a gilt that was previously issued.

For example: https://www.dmo.gov.uk/media/k4ybva3k/prosp080823.pdf

AUCTION OF £2,500,000,000
1⅛% TREASURY GILT 2039
ON A FULLY PAID BID PRICE BASIS ON 15 AUGUST 2023

...

1⅛% Treasury Gilt 2039 was first issued on 14 July 2021

The result of that auction was an average accepted price of 60.329 (see https://www.dmo.gov.uk/data/pdfdatarepo ... Code=D2.1A): so a heavy discount, reflecting the rise in yields since the original issuance.

[daveh]

What does a "low coupon" mean?

Presumably 1/8% or 1/4% coupon, convenient for retail investors who aim for tax-free capital gain at the expense of coupon income (if holding to maturity).

gpadsa

Exactly. I was looking at the upcoming gilt auctions on the dmo sight quoted above and there were a couple of upcoming auctions for gilts with a coupon of less than 0.5% (1/8% from memory). I've been using low coupon gilts recently to avoid tax on my cash, but there aren't any maturing beyond 2031 that aren't after I'm likely to be dead. I was surprised to see some more being issued, with interest rates where they are at the moment.

[GoSeigen]

However, the DMO can also "reopen" an issue, i.e. auction a new tranche of a gilt that was previously issued.

Thank you, I vaguely remember coming across this in the past but it had slipped my mind. I've never been a participant in primary issuance.


GS

[Alaric]

I was surprised to see some more being issued, with interest rates where they are at the moment.

There now seems to be a policy of attempting to meet some of Government borrowing from private investors. Offering deep discount low coupon issues has the advantage of saving coupons in the near future, so not increasing next year's requirement to borrow.

[daveh]

I was surprised to see some more being issued, with interest rates where they are at the moment.

There now seems to be a policy of attempting to meet some of Government borrowing from private investors. Offering deep discount low coupon issues has the advantage of saving coupons in the near future, so not increasing next year's requirement to borrow.

That's good for me, as I can use them as a way of avoiding (legally) tax on my cash holdings, but is it good for the government as when they mature they then have to pay the par amount all in one go* so it's just kicking the can down the road?

* And they don't even get CGT on the capital gain I make!

[OldBoyReturns]

There now seems to be a policy of attempting to meet some of Government borrowing from private investors. Offering deep discount low coupon issues has the advantage of saving coupons in the near future, so not increasing next year's requirement to borrow.

That's good for me, as I can use them as a way of avoiding (legally) tax on my cash holdings, but is it good for the government as when they mature they then have to pay the par amount all in one go* so it's just kicking the can down the road?

* And they don't even get CGT on the capital gain I make!

Be careful with this one. Bonds issued at a discount may be classified as Deeply Discounted Securities (DDS) for taxation purposes and have the increase between issue and maturity price treated as income for taxation purposes. I cannot remember the level of discount per year of term before the DDS regime kicks in but it should be easy to look up.

[londoninvestor]

That's good for me, as I can use them as a way of avoiding (legally) tax on my cash holdings, but is it good for the government as when they mature they then have to pay the par amount all in one go* so it's just kicking the can down the road?

* And they don't even get CGT on the capital gain I make!

Be careful with this one. Bonds issued at a discount may be classified as Deeply Discounted Securities (DDS) for taxation purposes and have the increase between issue and maturity price treated as income for taxation purposes. I cannot remember the level of discount per year of term before the DDS regime kicks in but it should be easy to look up.

Gilts (other than strips) are exempt from those rules: https://www.gov.uk/hmrc-internal-manual ... l/saim3040

Gilt strips are deeply discounted securities: the return is taxed as income, and unlike anything else I know of in the UK tax rules, it's effectively done on a mark-to-market basis. If you held the strip at the end of a tax year, you're liable to income tax on the increase in value over the year. See https://www.gov.uk/hmrc-internal-manual ... l/saim3130

[GeoffF100]

That's good for me, as I can use them as a way of avoiding (legally) tax on my cash holdings, but is it good for the government as when they mature they then have to pay the par amount all in one go* so it's just kicking the can down the road?

* And they don't even get CGT on the capital gain I make!

Be careful with this one. Bonds issued at a discount may be classified as Deeply Discounted Securities (DDS) for taxation purposes and have the increase between issue and maturity price treated as income for taxation purposes. I cannot remember the level of discount per year of term before the DDS regime kicks in but it should be easy to look up.

I do not have a link, but gilts are exempt from that rule. Worryingly, of course, the rules could change. Oops, beaten by seconds by a better reply.

[formoverfunction]

Should I buy new or existing gilts?

Article from the FT:

https://archive.ph/oTcfv

[passerby]

Freetrade have been offering treasury bills (zero coupon) for some time and they treat them as discounted securities for tax. They report the capgain as income on the tax statement.

[Padders72]

Freetrade have been offering treasury bills (zero coupon) for some time and they treat them as discounted securities for tax. They report the capgain as income on the tax statement.

And from next month they are charging a Treasury fee for bills that means that I can't really see the point in them vs a savings account really.