To find out more about becoming a pensioncraft.com Premium member, so that you can access the Gilt Yield Curve Tracker I show you in this video and many other benefits please use this link www.pensioncraft.com/investor-education/membership/
I understand how you feel, You'll benefit much from an expert advisor to provide guidance on the financial markets, I was like you for a while, now I'm ahead of these things.
Certainly and productivity is optimized, it applies to both the financial and digital markets, keeping up to date analysis and strategies make for more lucrative investments.
I’ve built a small ladder of UK gov bonds within my ii SIPP over the last few months (I’m close to retirement) and I’m very happy with how they are performing so far. I have a range of maturities from 2026 to 2034 paying between 4.75 and 6% yield. They have all gone up in value, between 0.5 and 2.5% in 2 months. Today I received my first dividend payments from 2 of them; nearly £800 from £30k of bonds. Since it’s within my SIPP I’m not worried about tax on the interest. Having the low risk compared to equities definitely helps me sleep at night, although I still have majority of my SIPP invested in global equities to give me the long term growth (hopefully!).
Managing money is different from accumulating wealth, and the lack of investment education in schools may explain why people struggle to maintain their financial gains. The examples you provided are relevant, and I personally benefited from the market crisis, as I embrace challenging times while others tend to avoid them. Well, at least my advisor does too, jokingly
You can place an order with Halifax online, but the trade isn't executed right away. They calculate the accrued interest offline separately, so executed price can vary slightly.
👍Thanks for explaining bonds. BTW, if the tax allowance is £1000 p.a. and a coupon is 5% then would we need over 20K's worth for bonds to be taxable as savings???👍
Yes assuming you are a basic rate taxpayer and you do not have any savings accounts that are earning interest. Interest earned on savings also counts towards that £1,000 allowance, so keep that in mind in your calculations 😊
@@TomsPersonalFinance 👍Thanks for that well-informed, useful and clear answer. Very practical too -- and not finance nerdy --as it would be easy to forget regular savings accounts. 👍
Hi @MuzzyArtyBiker personally I'm only using single gilts for my bond exposure because that way I have (almost) complete control over the yield of my investment on the day I buy the bond. That's not true of a bond fund where you have no control over when the bonds are sold and no idea of the yield of the investment as you're buying a bond portfolio. But if that's what you want then VGOV is a pretty good choice as it has a low fee. Thanks, Ramin.
In your first example - why would the capital back be 100 if it was originally 96? As you say, the interest would be about a pound (96p) so why wouldn't it be 97?
Hi @LondonStuff. a fund will hold a range of maturities of bonds. It will take a long time to pick up the higher income in UK gilts as bonds mature e.g. imagine the average maturity of the bonds in a fund is ten years then the higher coupon could take about five years to significantly push up the income on the bonds in the fund. Compare that with Vanguard's money market fund and you'll see it is picking up higher yields much more quickly because its investments mature very rapidly and are replaced with higher-yielding investments. Thanks, Ramin
Odd comment. The short term ones are a great investment at the moment. I personally will not take any duration risk at the moment but the January 2024 0.125% gilts are perfect.
Are you saying a 5-6% return low-risk investment guaranteed by the government yield for 1-2 yers with no threat to your nominal initial investment value is a bad deal? Especially with the threat of more interest rate hikes, recession, more inflation moving others asset class returns into negative territory yearly. Ramin said bonds are not long-term choice anyway right there in the video.
@MagicNash89 Your argument destroys itself. "More interest hikes" = lower bond prices and further capital losses."More inflation" erodes your fixed income. "Guaranteed by the govt." - I'm glad you still have faith in the govt to manage its finances. You're looking at a country with approaching £3tn in debt (almost £80k per taxpayer), ever growing liabilities, no productive/industrial base. Birmingham and other bankrupt councils are canaries in the coalmine. It's laughable that this character keeps promoting bonds and that people trust him.
This guy is amazing. The absolute king of these type of videos. I came here wanting to know what a bond was. Now I know when I should buy them, the total yield to maturity, the most tax efficient way to exploit the yield, both in and out of an ISA, and where and how I can buy them. Masterclass!
Hi @Fernando-gt5jt yes you do. On the maturity date you get the principal back alongside the last semi-annual coupon. It's put into your account as a cash payment. And you can hold gilts in an ISA, SIPP or general investment account. Thanks, Ramin.
Ramin, the room sounds like it has a lot of reverb. Try buying some free standing acoustic panels and placing them behind the microphone as the first point of reflection. They are not expensive and you can put them away when your not recording.
Hi @sometimesuk thanks for the suggestion. I don't think I'd have room. I'll try adjusting levels to see if that fixes it. There's actually a clothes rack in the room which must absorb some of the sound. Thanks, Ramin.
Hi @Vijinger10 If you are referring to the graph at 9:34, the UK Gilt Yield Curve graph with individual gilts on it. Yes we update it daily and it is available to Premium pensioncraft.com members. You can find out more about our membership here pensioncraft.com/investor-education/membership/
Yes historically governments haven't defaulted on their debts but the past will not predict the future. No one really saw COVID comming and yet it happened so don't rule out a bond default completely! I get that relatively speaking it is a safer return but that's based on past data and the risks are much higher for the UK given the direction the economy is heading in the long run! The UK is going to face a lot of economic doom imo. I think it's safer to park your money overseas!
Hi Ramin. Why is the TG61 bond so far below the yield curve? Having such a low coupon makes it tax efficient as you say - perhaps the deviation is accentuated by the term. I would expect only the likes of pension funds to be interested in holding this to maturity for matching purposes but I heard some excited chatter from a few young, high-earning professionals. Could this be because they have a view as to how the yield curve will change and are thus hoping to sell it in say 5 years to make a tax-free profit? I appreciate any insight you have on the matter, thanks.
Hi @TheMichaelru a low yield means a high price (i.e. popular) so my guess (same as yours) is that this is a favourite with institutional investors such as life insurance companies which have very long-term liabilities and are looking for assets that have long duration to match. But if their trade is tactical i.e. short-term then they would be assuming long-term rates will fall more than is priced in due to either GDP growth disappointing or inflation falling or both. Thanks, Ramin.
If I bought a long term Gilt, and the income was 3% and the Capital gain was 2%, would the 3% income be annual (ie 3% per year), while the capital gain would only be acquired at the end of the term?
Thank you for your great content. You can get 6.2% in a one year fix. I think that is paying more than capital gains free Gilts depending on your marginal tax rate.
Was so much looking forward to this video. Great explainer on all the details. Thanks Although I was trying to do this from within a company rather than personal and it was difficult to find a broker that would be suitable for this as I wanted to park some cash like that
Surprised this wasn't on the list, as it's the cheapest provider (and a part of lloyds bank). They usually charge £100 join fee (which you could get back if you deposit £5k), but currently zero cost to join.
Hi Ramin. Love you videos mate. Couple of points: 1. Halifax Share Dealing allow you to buy UK Gilts, has to be done via phone. 2. UK Treasury Bills are a type of UK Gilt that do NOT benefit from the zero CGT. Hope that helps!
I don't have to worry about using up my ISA and SIPP allowances any time soon... but interesting video nonetheless 😊 You really are the bond master haha
Hi @MagicNash89 I don't know whether brokers elsewhere e.g. the US allow the purchase of individual UK government bonds. Perhaps it would be easier to buy domestic government bonds in the country where you live? That way you won't have to worry about currency risk. Thanks, Ramin.
@@Laser2120 Smth like that, yes, as per the specific fund they must hold the bonds with specific duration...And if interest rates rise then their currently held bond value goes down(so does the fund) and vice versa...Thats basicly it
You should really make a video on global bond etfs.... Is it wise to buy now etf with around 9 year maturity (which I have done: "DBZB"...euro hedged, I'm from Finland)... and how about 25 year maturity! If not, then when if at all?
Hi @chqshaitan1 I'll put the volume up as several people have commented that it's quieter. In fact I increased the volume during a recent RUclips Live which was risky 8-/ Thanks, Ramin
Hi @Lightning_Lemon there are a few other advantages to single UK government bonds beyond tax efficiency. Firstly you can buy them in unlimited amounts. Secondly the money sits within a trading account so if there's a tumble in stocks you can immediately put the capital because there's a secondary market for gilts i.e. the money is not locked in for a fixed period of time and you can sell before maturity if you need to. Thanks, Ramin
@@PensioncraftI guess I hadn't considered liquidity, however personally if investing in this sort of thing I wouldn't think about touching it until the term is up.
Hi, NS&I sounds good. I heard about it but is it safe. Do they send the money back to my source account once the term ends? If someone can shed some light please? Tha ks
Hi @xxqq5719 you never know who the sellers are but this is a relatively liquid market for UK fixed income i.e. there will be continual buying and selling of each UK government bond in the secondary market and retail investors will make up a tiny fraction of that trading volume. It might be institutional investors on the other side of the trade. Thanks, Ramin.
Excellent video but not sure I’m understanding correctly. If anyone can help with this question. If I were to put 100k into a 3 month gilt (currently 5.3% yield) then after 3 months would I receive my 100k back plus 5.3% (£5,300) ?
I have always left some money in my NS & I account incase the government do a good bond deal. I unfortunately missed out on that 6.2% fixed bond last year.
Think UK gilts do not currently have a positive real interest rate, perhaps they are not a great investment choice. Worth bearing in mind that Sterling has declined by over 30% against USD and over 40% against CHF over the past 20 yrs. You certain that your British gilts are simply not making you globally poorer?
Great video! I'm from Brazil and was looking for information about UK Government Bonds, how they work and how they are different from Brazil's. The video was very informative and clear! I have one little note, though. I think that UK Government Bonds (or other government bonds of strong and mature economies) are good investments for the long term, because of their safeness. Now I agree stocks perform better and should be where the majority of the capital is invested in. However, I think it is important to have some of the long term investment allocated in safer and less volatile investments, such as UK Government Bonds. Thank you for the video!
NSI is 6.2% but taxable depending on your circumstances. If you won't breach the £1000 or £500 limits that is higher return than current money market fund. Plus interest rates may go up further, or possibly down in next 12 months. Certainty vs uncertainty. The taxation hit is the one you need to work out first and then compare. 🙂
@@wizzydq1 If we knew the answer exactly, we'd all be leveraged to the boobs and waiting for our fortunes to land in our trading accounts. Sadly, life isn't like that and you have to form a view. Rough UK consensus at the moment is for a small further rise and then flat on into 2024. But it will change with the facts as the monthly stats land. I like the NSI deal personally and have a similar position from a few months ago at a slightly lower rate. But I'm just a commenter on RUclips, don't make your decisions on our dribblings 🙂
Hello Ramin, can you clear up a bit of confusion over how the total redemption yield is calculated on these UK gilts. Some publications/commentators state that the Yield = income over the period to redemption + capital gain. However the UK Debt Management Office states the calculation assumes income is reinvested in the bond up to maturity. To quote in it's section 'About Gilts' the following: 'The redemption yield calculation assumes that the investor reinvests the interest payments received by buying more of the gilt at the same redemption yield).' Which is the correct calculation? Thank you.
Hi @timhulme6103 the DMO is right i.e. yield to maturity assumes you can reinvest the coupons at the yield to maturity rate which is unlikely to be the case. However, as coupons are so small compared to principal a reasonable approximation is that the yield to maturity is the annualized total return on the bond (capital gain/loss plus coupon income). Thanks, Ramin.
Thanks for your reply. I notice that the advertised rate on any bank/building society bonds show a very small difference when compared to the mandatory APR equivalent stated. I guess this mathematical difference only becomes important when dealing with seriously high percentage returns offered - say 15% or more.
Hi @markonthemarkets6150 I think the greatest drawback is that your money is locked in for a year. In contrast with a gilt you can sell that whenever you like but have the option to hold it to maturity. With gilts you also have more flexibility in the choice of maturities and yields. Thanks, Ramin
I'm interested to know if you held that TN25 in a Sipp would the yield split matter if you were using the yield to grow the SIPP overall value and not income.
Many thanks for this video, very useful. One quick question...if you get £7k in coupon returns in a single tax year and you have a savings allowance of £2k then what tax do you pay (a) 20% of the difference ie 20% of £5k , as a tax on savings over an above your allowance or (b) add the £5k to your annual income and then pay the tax due on total income from salary and savings for the year? thank you :)
Hi @yewchoobar1673 the one where I bought gilts was here ruclips.net/video/Vh5FmZRjBpo/видео.htmlsi=kRbLYBKpBslblsPo but for our website premium members we have a video in more depth www.pensioncraft.com/patreon-post/selecting-bonds/ Thanks, Ramin
Correct me if I'm wrong - After 16 mths (maturity date) you get £100, then 12mth gain is about 3.5% and income is about 0.22% yearly. The yearly total is 3.75% (the 0.22% may be reduced even more by tax). If that is correct then a basic rate tax payer can get a better 4.16% on a 5.2% instant access account.
Even to get the full 3.75% you need to wait for maturity (or 'fix' it for 16 months). If you are doing that then surely tax payers will be better off going for the 1 years fixes at 6.1%?
Currently going on the long side myself - probably a sign that inflation will than rise again and ramp interest rates further 🤣If Andrew Bailey is confident, what can go wrong... 😭
Having been in exactly the situation you described because I was given a lump sum having hit retirement, I looked around for various tax efficient ways to place the money over the next year or two, pending spending, SIPP or ISA availability. Gilts did not come out top for me. You can currently get around 5.5% by opening up a fixed term bank bond. Even allowing for the differing tax treatments, that beats gilts. In my case, next year, for one year only, I probably will have to pay tax on interest. The money is protected up to £85,000, and, like bonds, becomes available on a pre-planned date. Having said that, my stockbroker (one of the ones listed) has a fairly short list of gilts available.
Hi @timg1246, Most brokers will add normally tradable UK listed instruments to their systems if you give them the ISIN. I've found that to be the case with LSE traded ETFs, such as for a new GBP class where they already carried the USD version. Someone has to be the first to request it to be added. It's worth asking.
Why does it not make sense to buy NEWLY issued longer dated guilts, now, on the basis rates will fall? (Yes, that is a market call but it should become obvious soon) If the interest rate on the short end of the curve drops, especially below the current value of the longer dated guilts, surely the value of those at the longer end will rise in value for a nice capital gain, as those longer dated guilts, issued at that later time, will likely no longer be offer such a high coupon, so those with a higher coupon become more valuable, especially of course with many many years left on them. One is essential buying both for a locked in income, and a potential capital gain.
Hi @jameswalker366 the yields at the short end of the curve are a very attractive prospect at the moment because you don't need to make any forecast at all - just buy and hold to maturity and lock in reasonable returns for very little risk. If you are right that yields are going to fall (you might be right) then long-term gilts would be attractive if you sell for a gain before maturity. But if you're wrong you might be waiting a while with a fairly low-coupon investment. Over the longer term government bonds tend to underperform as I say at the end of the video so given the choice personally I'd probably avoid longer term gilts at the moment. Thanks, Ramin.
On HL you can buy them just like a share. Only difference is you also have to pay the accrued interest which depends on date you buy v the coupon date.
Does yield to maturity indicate annual yield, or total yield? I.e. if yield on a 2 year bond held to maturity is 5% then is 5% each year or just 5% over two years?
If you are okay with lending money to a government that put you under house arrest for 240 days and is likely to put you in prison for a year for not heating your home properly then go right ahead and buy gilts. The other setback you will get from gilts is that the real rate of return is negative as CPI and especially RPI are running way above the nominal return for gilts.
@@Goodman849 That is what I meant by the 240 days. That is the total days of lockdown in 2020/21 and 2022. They, of course, did even worse things as you and I know.
The other option , the FTSE 100 , is only paying 3.8% yield with no signs of capital growth anytime soon. In that scenario , bonds look decent at 6%. Regardless of CPI or RPI, you're still behind either way.
Why I steer clear…. The BaE is facing negative equity due to devalued bonds and treasury buyers are at the mercy of whatever state the economy’s in upon redemption…
Hi Ramin, you mentioned some Gilts are not CGT free - UK Gilt Strips are not CGT free. These are Gilts 'stripped' of any coupon, (ie 0.0% coupon). HMRC specifically deems capital gain/loss on these to be taxable as INCOME, on an annual basis (ie as if you had sold and reacquired them at the end of each tax year at the prevailing price). Thanks for the Gilt specific video - very useful.
@@Pensioncraft They are listed on the Hargreaves Landsdown website's Gilt pages, along with their ISINs, so I assume they trade them. I used one of those strip ISIN with the AJBell deal search option and it returns the correct details, so I assume you can trade them through AJBell too, though I couldn't find the same ISIN in Interactive Investor. Interested to understand what the main uses of strips are though, if gains are taxed as income?
@@george6977 Hi, yes gains would be tax free in an ISA or SIPP, but so would the conventional coupon bearing Gilts. The benefit of conventional Gilts, as Ramin suggested, is the tax exemption on Capital Gain outside of personal tax shelters for UK tax payers, particularly where the coupon is low (and the maturity short). Having just done a little subsequent reading since my previous comment, it appears that Strips have a use in hedging interest rate risk, in the creation of synthetic instruments, and that they have a higher duration vs a conventional Gilt of the same maturity, which is useful for liability matching... all rather institutional use cases it appears.
An advantage of gilts compared to fixed term deposits is that gilts can be sold before maturity, for example, if you are planning a house purchase. In this case consider Ultra-Short dated gilts so that volatility is low. A point not discussed is the spread between the buy and sell prices. For example, at present HL shows TREASURY 2% 07/09/2025 (T25) GILT Sell:£94.59 Buy:£94.79. In my experience trades execute at a price much closer to the mid-market price. You can see this on sharescope. And then there’s clean and dirty prices.
Are gilts like a fixed rate bond from banks? I was thinking of opening a year-long fixed rate bond every three months to get some sort of regular income but need some feedback. But does this mean I need four different banks?
Gilts are debt issued by the UK government. They are called gilts because they are 'gilt edged', that is, they are considered 100% safe. The government WILL pay out. Gilts are not technically the same, but, in effect, they operate in very similar ways to a limited term bank bond. You have to be aware that gilt prices fluctuate. So if you pay over the redemption price, effectively, you lose that percentage on redemption day. There is no legal reason you could not put money into several bonds with the same bank, so long as they are happy to take the money. Can't see why they would object. You may wish to take in to account the maximum guaranteed sum per customer per bank, which is £85,000. That covers all accounts combined, not separately. So, if the total goes over that, some people would divide the sum between banks. The tax position on all of these is explained in the video, so take that in to account.
If you believe the the UK is going bankrupt or smth like that, then - strictly for UK investors - most asset classes like Stocks, Real Estate etc would be bad choices, they would all be negatively affected, maybe save for a few "odd" ones.
As @MagicNash89 says a UK default is extremely unlikely and that's all that can really go badly wrong with owning a UK government bond. However, they're not a long-term investment as they usually underperform stocks. Thanks, Ramin.
@Pensioncraft Hi Ramin . At 11:21 you mentioned you made a video for Interative Investor. I'm an investor at II but can't find this video, could you advise a link please ? I'd like to follow the process you used as I still have some niggling questions about bonds. I'm planning on subscribing to pensioncraft as you and only you have given me the clarity of explanation, insights and tools I need for various things not just bonds, much appreciated !
Hi @jcridge It's part of one of my videos called Why I Bought Inflation Linked Bonds and you can find it here ruclips.net/video/Vh5FmZRjBpo/видео.html Members have access to a more detailed video with notes about buying single bonds but this is the one I did for RUclips
To find out more about becoming a pensioncraft.com Premium member, so that you can access the Gilt Yield Curve Tracker I show you in this video and many other benefits please use this link www.pensioncraft.com/investor-education/membership/
Any chance of a video on how bond ETFs work? Not much out there on this subject, at least not much quality content.
I agree, that would be a great topic to cover.
Yes I am also interested as that's how I would approach it for passive income
Agree. Please cover how the payback period works as I know it is different from a single bond
I understand how you feel, You'll benefit much from an expert advisor to provide guidance on the financial markets, I was like you for a while, now I'm ahead of these things.
Certainly and productivity is optimized, it applies to both the financial and digital markets, keeping up to date analysis and strategies make for more lucrative investments.
I’ve built a small ladder of UK gov bonds within my ii SIPP over the last few months (I’m close to retirement) and I’m very happy with how they are performing so far. I have a range of maturities from 2026 to 2034 paying between 4.75 and 6% yield. They have all gone up in value, between 0.5 and 2.5% in 2 months. Today I received my first dividend payments from 2 of them; nearly £800 from £30k of bonds. Since it’s within my SIPP I’m not worried about tax on the interest. Having the low risk compared to equities definitely helps me sleep at night, although I still have majority of my SIPP invested in global equities to give me the long term growth (hopefully!).
Managing money is different from accumulating wealth, and the lack of investment education in schools may explain why people struggle to maintain their financial gains. The examples you provided are relevant, and I personally benefited from the market crisis, as I embrace challenging times while others tend to avoid them. Well, at least my advisor does too, jokingly
You can place an order with Halifax online, but the trade isn't executed right away. They calculate the accrued interest offline separately, so executed price can vary slightly.
Hi @amrelhady3634 thanks for that - I didn't know Halifax and iWeb offer single gilts. Thanks, Ramin
Thank you, thIs is a very interesting video and good explanation! I also enjoy your weekly podcast.
Thanks for listening @AndrewGAlonzi
👍Thanks for explaining bonds. BTW, if the tax allowance is £1000 p.a. and a coupon is 5% then would we need over 20K's worth for bonds to be taxable as savings???👍
Yes assuming you are a basic rate taxpayer and you do not have any savings accounts that are earning interest. Interest earned on savings also counts towards that £1,000 allowance, so keep that in mind in your calculations 😊
@@TomsPersonalFinance 👍Thanks for that well-informed, useful and clear answer. Very practical too -- and not finance nerdy --as it would be easy to forget regular savings accounts. 👍
Yes video about bonds ETFs
Love the gilt chart with every gilt on ot. Brilliant! Is thos available via a website somewhere?
Thanks @nigelplummer They are available on our website for our Premium members www.pensioncraft.com/investor-education/membership/
What are you thoughts on vanguards VGOV etf please?
Hi @MuzzyArtyBiker personally I'm only using single gilts for my bond exposure because that way I have (almost) complete control over the yield of my investment on the day I buy the bond. That's not true of a bond fund where you have no control over when the bonds are sold and no idea of the yield of the investment as you're buying a bond portfolio. But if that's what you want then VGOV is a pretty good choice as it has a low fee. Thanks, Ramin.
Will investing in guilds ETFs be the same thing?
Silly question. How do you know that there will be positive capital gain at maturation?
They are always redeemed at par ( £100 ) at the maturity date. You are literally buying one pound coins for 95p .
In your first example - why would the capital back be 100 if it was originally 96? As you say, the interest would be about a pound (96p) so why wouldn't it be 97?
Effectively your buying a £100 bond for £96. So at maturity you will get back £100 + £1 =£101. Hope this helps
UK gilts on vanguard is paying 2.73% - is that true?
Hi @LondonStuff. a fund will hold a range of maturities of bonds. It will take a long time to pick up the higher income in UK gilts as bonds mature e.g. imagine the average maturity of the bonds in a fund is ten years then the higher coupon could take about five years to significantly push up the income on the bonds in the fund. Compare that with Vanguard's money market fund and you'll see it is picking up higher yields much more quickly because its investments mature very rapidly and are replaced with higher-yielding investments. Thanks, Ramin
Appalling advice, as seems to be the norm on this channel. Is your aim to impoverish people?
Odd comment. The short term ones are a great investment at the moment. I personally will not take any duration risk at the moment but the January 2024 0.125% gilts are perfect.
Are you saying a 5-6% return low-risk investment guaranteed by the government yield for 1-2 yers with no threat to your nominal initial investment value is a bad deal? Especially with the threat of more interest rate hikes, recession, more inflation moving others asset class returns into negative territory yearly. Ramin said bonds are not long-term choice anyway right there in the video.
@MagicNash89 Your argument destroys itself. "More interest hikes" = lower bond prices and further capital losses."More inflation" erodes your fixed income. "Guaranteed by the govt." - I'm glad you still have faith in the govt to manage its finances. You're looking at a country with approaching £3tn in debt (almost £80k per taxpayer), ever growing liabilities, no productive/industrial base. Birmingham and other bankrupt councils are canaries in the coalmine. It's laughable that this character keeps promoting bonds and that people trust him.
This guy is amazing. The absolute king of these type of videos.
I came here wanting to know what a bond was. Now I know when I should buy them, the total yield to maturity, the most tax efficient way to exploit the yield, both in and out of an ISA, and where and how I can buy them.
Masterclass!
Thanks for the comment! :) @Chris-bj7fi
FYI Halifax offer gilts in their general investment, ISA and SIPP accounts.
Hi @pelocitdarney5718 thanks for letting me know! Ramin.
Do you receive your principal back if you buy the gilt on freetrade or trading 212?
Hi @Fernando-gt5jt yes you do. On the maturity date you get the principal back alongside the last semi-annual coupon. It's put into your account as a cash payment. And you can hold gilts in an ISA, SIPP or general investment account. Thanks, Ramin.
@@Pensioncraft silly follow up question but this also applies to US bonds and other foreign bonds as well right?
You need to sort the mic volume. Sounds like you are in another room. Few videos now. Used to have volume set at 18%, now 40%.
Ramin, the room sounds like it has a lot of reverb. Try buying some free standing acoustic panels and placing them behind the microphone as the first point of reflection. They are not expensive and you can put them away when your not recording.
Hi @helixvonsmelix thanks for the feedback. I've tried increasing the volume - let's see if that improves things. Ramin.
Hi @sometimesuk thanks for the suggestion. I don't think I'd have room. I'll try adjusting levels to see if that fixes it. There's actually a clothes rack in the room which must absorb some of the sound. Thanks, Ramin.
this is 10 months old. Any update of this graph today? Is it in one of your paid subscriptions?
Hi @Vijinger10 If you are referring to the graph at 9:34, the UK Gilt Yield Curve graph with individual gilts on it. Yes we update it daily and it is available to Premium pensioncraft.com members. You can find out more about our membership here pensioncraft.com/investor-education/membership/
Would love to hear your take on the Birmingham bankruptcy. Does it affect how you might think about municipal bonds? Or just an outlier?
Yes historically governments haven't defaulted on their debts but the past will not predict the future. No one really saw COVID comming and yet it happened so don't rule out a bond default completely! I get that relatively speaking it is a safer return but that's based on past data and the risks are much higher for the UK given the direction the economy is heading in the long run! The UK is going to face a lot of economic doom imo. I think it's safer to park your money overseas!
Hi Ramin. Why is the TG61 bond so far below the yield curve? Having such a low coupon makes it tax efficient as you say - perhaps the deviation is accentuated by the term. I would expect only the likes of pension funds to be interested in holding this to maturity for matching purposes but I heard some excited chatter from a few young, high-earning professionals. Could this be because they have a view as to how the yield curve will change and are thus hoping to sell it in say 5 years to make a tax-free profit? I appreciate any insight you have on the matter, thanks.
Hi @TheMichaelru a low yield means a high price (i.e. popular) so my guess (same as yours) is that this is a favourite with institutional investors such as life insurance companies which have very long-term liabilities and are looking for assets that have long duration to match. But if their trade is tactical i.e. short-term then they would be assuming long-term rates will fall more than is priced in due to either GDP growth disappointing or inflation falling or both. Thanks, Ramin.
Thanks @@Pensioncraft
This is a great joke to start the day with, thank you :)
In the medium to long run bonds lose value against inflation. Governments, the biggest borrowers, would not have it otherwise.
For the record, Degiro offer European government bonds to UK investors.
If I bought a long term Gilt, and the income was 3% and the Capital gain was 2%, would the 3% income be annual (ie 3% per year), while the capital gain would only be acquired at the end of the term?
Thank you for your great content. You can get 6.2% in a one year fix. I think that is paying more than capital gains free Gilts depending on your marginal tax rate.
Was so much looking forward to this video. Great explainer on all the details. Thanks
Although I was trying to do this from within a company rather than personal and it was difficult to find a broker that would be suitable for this as I wanted to park some cash like that
iWeb also offer single gilts
Surprised this wasn't on the list, as it's the cheapest provider (and a part of lloyds bank). They usually charge £100 join fee (which you could get back if you deposit £5k), but currently zero cost to join.
Thanks @giuseppemoschella953! Ramin
Thanks Ramin, another brilliant informative video!
Glad you liked it! @markleslie9505
Barclays do single gilts
Hi @peterellwood2103 thanks for that - I didn't know they did that. Thanks, Ramin
Just what I needed Ramin, much obliged, thank you!!
Glad I could help! @rodclarke5731
Has teddy filed his biltong ETF yet?
Have a great weekend pensioncraft
Hi Ramin.
Love you videos mate. Couple of points:
1. Halifax Share Dealing allow you to buy UK Gilts, has to be done via phone.
2. UK Treasury Bills are a type of UK Gilt that do NOT benefit from the zero CGT.
Hope that helps!
Living outside the UK but still learning stuff about bonds here, thank you.
I don't have to worry about using up my ISA and SIPP allowances any time soon... but interesting video nonetheless 😊
You really are the bond master haha
8-) thank you @TomsPersonalFinance
I’ll come back when I can max out my ISA.
iWeb lets you buy individual gilts
Thanks @jitheshak1 I didn't know that, Ramin.
Where to buy gilts for foreign investors?
Hi @MagicNash89 I don't know whether brokers elsewhere e.g. the US allow the purchase of individual UK government bonds. Perhaps it would be easier to buy domestic government bonds in the country where you live? That way you won't have to worry about currency risk. Thanks, Ramin.
Could you explain how a bond fund works? Like vanguard has
I do believe he has done a in depth video on that in the past it is quite complicated the way the fund is forced to sell some and buy others
@@Laser2120 Smth like that, yes, as per the specific fund they must hold the bonds with specific duration...And if interest rates rise then their currently held bond value goes down(so does the fund) and vice versa...Thats basicly it
You should really make a video on global bond etfs.... Is it wise to buy now etf with around 9 year maturity (which I have done: "DBZB"...euro hedged, I'm from Finland)... and how about 25 year maturity! If not, then when if at all?
have you changed your mic bud? volume is a bit lower than normal
Hi @chqshaitan1 I'll put the volume up as several people have commented that it's quieter. In fact I increased the volume during a recent RUclips Live which was risky 8-/ Thanks, Ramin
A bond ladder with Uk gilts is a great planning tool for ISA years and pension/tax requirements. All hail the cult of ramin 🫡
Hi @pointoblivionuk4796 not sure I have enough followers to be a cult but thanks 8-) Ramin.
You can buy Gilts directly. There is a vetting process and even LTD companies can do it too.
How please?
I buy some short dated gilts when stocks seem expensive, for liquidity should stocks enter a bear market.
That sounds like a reasonable strategy @george6977 Thanks, Ramin.
I bought an index linked gilt through Barclays Smart Investor.
Thanks @jonb5135 I'll take a look. Ramin
If you are not worried about tax efficiency wouldn't you just buy a fixed rate bond from a bank instead? NS & I currently have one at 6.2%
Hi @Lightning_Lemon there are a few other advantages to single UK government bonds beyond tax efficiency. Firstly you can buy them in unlimited amounts. Secondly the money sits within a trading account so if there's a tumble in stocks you can immediately put the capital because there's a secondary market for gilts i.e. the money is not locked in for a fixed period of time and you can sell before maturity if you need to. Thanks, Ramin
@@PensioncraftI guess I hadn't considered liquidity, however personally if investing in this sort of thing I wouldn't think about touching it until the term is up.
Hi, NS&I sounds good. I heard about it but is it safe. Do they send the money back to my source account once the term ends? If someone can shed some light please? Tha ks
Who are the sellers? - entities who bought at the higher prices not long ago?
Hi @xxqq5719 you never know who the sellers are but this is a relatively liquid market for UK fixed income i.e. there will be continual buying and selling of each UK government bond in the secondary market and retail investors will make up a tiny fraction of that trading volume. It might be institutional investors on the other side of the trade. Thanks, Ramin.
Excellent video but not sure I’m understanding correctly. If anyone can help with this question. If I were to put 100k into a 3 month gilt (currently 5.3% yield) then after 3 months would I receive my 100k back plus 5.3% (£5,300) ?
I really like this video, for me I would prefer to go via the ultra short term bonds - less complex...🙃
Hi @MadderPrinciple thanks. I've bought short-term govvies too. Thanks, Ramin
You'd be right. Only a fool would buy a 10 or 20 year UK bond, given the prospects for the UK economy
I have always left some money in my NS & I account incase the government do a good bond deal. I unfortunately missed out on that 6.2% fixed bond last year.
Think UK gilts do not currently have a positive real interest rate, perhaps they are not a great investment choice. Worth bearing in mind that Sterling has declined by over 30% against USD and over 40% against CHF over the past 20 yrs. You certain that your British gilts are simply not making you globally poorer?
@pensioncraft Is the yield of a bind what is earned annually or on maturity?
In the example, does TN25 only return 5% on the investment on March 2025?
Great video! I'm from Brazil and was looking for information about UK Government Bonds, how they work and how they are different from Brazil's. The video was very informative and clear! I have one little note, though. I think that UK Government Bonds (or other government bonds of strong and mature economies) are good investments for the long term, because of their safeness. Now I agree stocks perform better and should be where the majority of the capital is invested in. However, I think it is important to have some of the long term investment allocated in safer and less volatile investments, such as UK Government Bonds. Thank you for the video!
Can you provide a link to where you actually bought the UK Gov bonds please.
What is a better bet, the N&S 6% 1 year bond or the money market funds?
NSI is 6.2% but taxable depending on your circumstances. If you won't breach the £1000 or £500 limits that is higher return than current money market fund. Plus interest rates may go up further, or possibly down in next 12 months. Certainty vs uncertainty. The taxation hit is the one you need to work out first and then compare. 🙂
Depends if you want liquidity within the year, to reallocate to stocks. NSI locks up your money for the year. MM does not.
Thanks but assuming I don't need the money, what is most likely to give better returns. I suppose are interest rates likely to go up further.
@@wizzydq1 If we knew the answer exactly, we'd all be leveraged to the boobs and waiting for our fortunes to land in our trading accounts. Sadly, life isn't like that and you have to form a view. Rough UK consensus at the moment is for a small further rise and then flat on into 2024. But it will change with the facts as the monthly stats land. I like the NSI deal personally and have a similar position from a few months ago at a slightly lower rate. But I'm just a commenter on RUclips, don't make your decisions on our dribblings 🙂
Hello Ramin, can you clear up a bit of confusion over how the total redemption yield is calculated on these UK gilts. Some publications/commentators state that the Yield = income over the period to redemption + capital gain. However the UK Debt Management Office states the calculation assumes income is reinvested in the bond up to maturity. To quote in it's section 'About Gilts' the following: 'The redemption yield calculation assumes that the investor reinvests the interest payments received by buying more of the gilt at the same redemption yield).'
Which is the correct calculation?
Thank you.
Hi @timhulme6103 the DMO is right i.e. yield to maturity assumes you can reinvest the coupons at the yield to maturity rate which is unlikely to be the case. However, as coupons are so small compared to principal a reasonable approximation is that the yield to maturity is the annualized total return on the bond (capital gain/loss plus coupon income). Thanks, Ramin.
Thanks for your reply. I notice that the advertised rate on any bank/building society bonds show a very small difference when compared to the mandatory APR equivalent stated. I guess this mathematical difference only becomes important when dealing with seriously high percentage returns offered - say 15% or more.
What do you think about the NSandI guaranteed growth bond at 6.2%?
Hi @markonthemarkets6150 I think the greatest drawback is that your money is locked in for a year. In contrast with a gilt you can sell that whenever you like but have the option to hold it to maturity. With gilts you also have more flexibility in the choice of maturities and yields. Thanks, Ramin
I'm interested to know if you held that TN25 in a Sipp would the yield split matter if you were using the yield to grow the SIPP overall value and not income.
Barclays Smart investor runs on AJ Bell - I am looking to buy on there and appreciate your video
Many thanks for this video, very useful. One quick question...if you get £7k in coupon returns in a single tax year and you have a savings allowance of £2k then what tax do you pay (a) 20% of the difference ie 20% of £5k , as a tax on savings over an above your allowance or (b) add the £5k to your annual income and then pay the tax due on total income from salary and savings for the year?
thank you :)
What risk do you see for ultra/long maturity ones 2040-2060? Couldn't these benefit from good capital appreciation in the short term?
Hello - you didn’t mention strip gilts - they are even more tax efficient
Although I haven't bought direct gilts myself with my broker, you can buy them with EQi (EQi are closed to opening new accounts).
Hi @Money_Hoarder_95 thanks for that - Ramin.
What books do you recommend?
-Trading in the Zone
-Controlled Trading
Anything by Andy McNab
What’s your objective?
where is the link to the video where you bought Gilts on IG?
Hi @yewchoobar1673 the one where I bought gilts was here ruclips.net/video/Vh5FmZRjBpo/видео.htmlsi=kRbLYBKpBslblsPo but for our website premium members we have a video in more depth www.pensioncraft.com/patreon-post/selecting-bonds/ Thanks, Ramin
Interactive Brokers also offer a Gilts and bond marketplace.
Hmm, the coupon is coming out of tax revenues, so really just a tiny discount on your tax.
Nice
Thanks @jimbojimbo6873
Hi, could you put a link to your video on interactive investor. Thanks
Hi, I'm really enjoying your content. Could you do a video explaining offshore funds and management of them please?
Correct me if I'm wrong - After 16 mths (maturity date) you get £100, then 12mth gain is about 3.5% and income is about 0.22% yearly.
The yearly total is 3.75% (the 0.22% may be reduced even more by tax).
If that is correct then a basic rate tax payer can get a better 4.16% on a 5.2% instant access account.
Even to get the full 3.75% you need to wait for maturity (or 'fix' it for 16 months). If you are doing that then surely tax payers will be better off going for the 1 years fixes at 6.1%?
Currently going on the long side myself - probably a sign that inflation will than rise again and ramp interest rates further 🤣If Andrew Bailey is confident, what can go wrong... 😭
Hi @Mouxbar Greggs could have a sausage roll shortage... Thanks, Ramin.
explain it to me like i am 5 years old next time
Having been in exactly the situation you described because I was given a lump sum having hit retirement, I looked around for various tax efficient ways to place the money over the next year or two, pending spending, SIPP or ISA availability. Gilts did not come out top for me.
You can currently get around 5.5% by opening up a fixed term bank bond. Even allowing for the differing tax treatments, that beats gilts. In my case, next year, for one year only, I probably will have to pay tax on interest.
The money is protected up to £85,000, and, like bonds, becomes available on a pre-planned date.
Having said that, my stockbroker (one of the ones listed) has a fairly short list of gilts available.
ns&i offering 6.2% on 1 year bonds (taxable) as of 09-09-2023, whole investment amount guaranteed (excepting failure of UK financial system)
Hi @timg1246, Most brokers will add normally tradable UK listed instruments to their systems if you give them the ISIN. I've found that to be the case with LSE traded ETFs, such as for a new GBP class where they already carried the USD version. Someone has to be the first to request it to be added. It's worth asking.
Could you post the link to the video where you buy gilts on Interactive Investor? I could not find it in your video feed.
Hi @billcarson3634 It is one of our pensioncraft.com Premium member videos here pensioncraft.com/patreon-post/selecting-bonds/
Hey Ramin. Why no episode of Many Happy Returns this week?
Sorry @TomsPersonalFinance we decided to take a week oof. But hopefully back again next week as normal
@Pensioncraft ah no problem! Looking forward to it next week 😊
Save in physical GOLD, no third party risk.
How n where
Why does it not make sense to buy NEWLY issued longer dated guilts, now, on the basis rates will fall? (Yes, that is a market call but it should become obvious soon)
If the interest rate on the short end of the curve drops, especially below the current value of the longer dated guilts, surely the value of those at the longer end will rise in value for a nice capital gain, as those longer dated guilts, issued at that later time, will likely no longer be offer such a high coupon, so those with a higher coupon become more valuable, especially of course with many many years left on them.
One is essential buying both for a locked in income, and a potential capital gain.
Hi @jameswalker366 the yields at the short end of the curve are a very attractive prospect at the moment because you don't need to make any forecast at all - just buy and hold to maturity and lock in reasonable returns for very little risk. If you are right that yields are going to fall (you might be right) then long-term gilts would be attractive if you sell for a gain before maturity. But if you're wrong you might be waiting a while with a fairly low-coupon investment. Over the longer term government bonds tend to underperform as I say at the end of the video so given the choice personally I'd probably avoid longer term gilts at the moment. Thanks, Ramin.
@@Pensioncraft Thanks for the thoughts
Still confused as to how to buy them and how they work but thanks for the video as always.
On HL you can buy them just like a share. Only difference is you also have to pay the accrued interest which depends on date you buy v the coupon date.
Great focussed video @Ramin. Tks
Thanks for watching @pglondon1448
Great video from the Bondmeister!
Thanks for watching @kensitp
Very useful. Thankyou.
Glad it was helpful! @d314159
Does yield to maturity indicate annual yield, or total yield? I.e. if yield on a 2 year bond held to maturity is 5% then is 5% each year or just 5% over two years?
The yield is annual. I have ~£20k of TR28 6% gilts and today they paid out £550. They pay bi-annually so that means I’ll receive £1100 or 6% per year.
@@stevegeekand then you get your £20k back, right? So it's not possible to lose money on bonds as long as you hold them to maturity?
@@ubernard3000 That's right, if you hold individual bonds that have a maturity date. If you hold bond funds, then you certainly can lose money!
Where do you buy these bonds?
Interactive Investor, Hargreaves Lansdown, A J Bell, X-O, iWeb and Halifax.
Mic not loud today.
Hi @CodeCruiser Thanks for the feedback. We had a bit of a hiccup with the editing but it will be corrected for the next video
Very enlightening. thanks
Glad it was helpful! @philipwood123
So clear!
Thank you! @simonebruschi9793
hi
Hello @miller58_49!
If you are okay with lending money to a government that put you under house arrest for 240 days and is likely to put you in prison for a year for not heating your home properly then go right ahead and buy gilts. The other setback you will get from gilts is that the real rate of return is negative as CPI and especially RPI are running way above the nominal return for gilts.
English gov did even worse to me during 2020 covid
@@Goodman849 That is what I meant by the 240 days. That is the total days of lockdown in 2020/21 and 2022. They, of course, did even worse things as you and I know.
The other option , the FTSE 100 , is only paying 3.8% yield with no signs of capital growth anytime soon. In that scenario , bonds look decent at 6%. Regardless of CPI or RPI, you're still behind either way.
@@johnristheanswer Or gold coins of the realm that have been returning on average 10% per annum since 2000. They are exempt from CGTs too.
👏👏👏
Why I steer clear…. The BaE is facing negative equity due to devalued bonds and treasury buyers are at the mercy of whatever state the economy’s in upon redemption…
Bond + Bonanza = Bonza?
Better than bondanza, at least
8-)
Barclays Smart Investor
Thanks @Mr1123581325 I didn't know about Barclays. Thanks, Ramin.
Hi Ramin, you mentioned some Gilts are not CGT free - UK Gilt Strips are not CGT free. These are Gilts 'stripped' of any coupon, (ie 0.0% coupon). HMRC specifically deems capital gain/loss on these to be taxable as INCOME, on an annual basis (ie as if you had sold and reacquired them at the end of each tax year at the prevailing price). Thanks for the Gilt specific video - very useful.
More like the Gilt itself is a coupon hence why it’s treated as income.
Hi @lyndonbrown4680 thanks for that. I don't know where you can buy strips (for retail investors) but that's interesting background to know. Ramin.
@@Pensioncraft They are listed on the Hargreaves Landsdown website's Gilt pages, along with their ISINs, so I assume they trade them. I used one of those strip ISIN with the AJBell deal search option and it returns the correct details, so I assume you can trade them through AJBell too, though I couldn't find the same ISIN in Interactive Investor. Interested to understand what the main uses of strips are though, if gains are taxed as income?
@lyndonbrown4680
Within an ISA or Sipp they would be tax free.
@@george6977 Hi, yes gains would be tax free in an ISA or SIPP, but so would the conventional coupon bearing Gilts. The benefit of conventional Gilts, as Ramin suggested, is the tax exemption on Capital Gain outside of personal tax shelters for UK tax payers, particularly where the coupon is low (and the maturity short). Having just done a little subsequent reading since my previous comment, it appears that Strips have a use in hedging interest rate risk, in the creation of synthetic instruments, and that they have a higher duration vs a conventional Gilt of the same maturity, which is useful for liability matching... all rather institutional use cases it appears.
An advantage of gilts compared to fixed term deposits is that gilts can be sold before maturity, for example, if you are planning a house purchase. In this case consider Ultra-Short dated gilts so that volatility is low.
A point not discussed is the spread between the buy and sell prices. For example, at present HL shows TREASURY 2% 07/09/2025 (T25) GILT Sell:£94.59 Buy:£94.79. In my experience trades execute at a price much closer to the mid-market price. You can see this on sharescope.
And then there’s clean and dirty prices.
Yes the spread is nearly always much tighter than quoted.
Are gilts like a fixed rate bond from banks?
I was thinking of opening a year-long fixed rate bond every three months to get some sort of regular income but need some feedback.
But does this mean I need four different banks?
Gilts are debt issued by the UK government. They are called gilts because they are 'gilt edged', that is, they are considered 100% safe. The government WILL pay out. Gilts are not technically the same, but, in effect, they operate in very similar ways to a limited term bank bond. You have to be aware that gilt prices fluctuate. So if you pay over the redemption price, effectively, you lose that percentage on redemption day.
There is no legal reason you could not put money into several bonds with the same bank, so long as they are happy to take the money. Can't see why they would object.
You may wish to take in to account the maximum guaranteed sum per customer per bank, which is £85,000. That covers all accounts combined, not separately. So, if the total goes over that, some people would divide the sum between banks.
The tax position on all of these is explained in the video, so take that in to account.
@@timg1246 Amazing response! Thanks!
Not true imo. Bonds are a disaster in waiting.
If you believe the the UK is going bankrupt or smth like that, then - strictly for UK investors - most asset classes like Stocks, Real Estate etc would be bad choices, they would all be negatively affected, maybe save for a few "odd" ones.
As @MagicNash89 says a UK default is extremely unlikely and that's all that can really go badly wrong with owning a UK government bond. However, they're not a long-term investment as they usually underperform stocks. Thanks, Ramin.
@Pensioncraft Hi Ramin . At 11:21 you mentioned you made a video for Interative Investor. I'm an investor at II but can't find this video, could you advise a link please ? I'd like to follow the process you used as I still have some niggling questions about bonds. I'm planning on subscribing to pensioncraft as you and only you have given me the clarity of explanation, insights and tools I need for various things not just bonds, much appreciated !
Hi @jcridge It's part of one of my videos called Why I Bought Inflation Linked Bonds and you can find it here ruclips.net/video/Vh5FmZRjBpo/видео.html
Members have access to a more detailed video with notes about buying single bonds but this is the one I did for RUclips
@@Pensioncraft much obliged, that seems like essential viewing too