Interactive Investor

Bond Watch: you can now participate in gilt auctions

Sam Benstead breaks down the latest news affecting bond investors.

23rd February 2024 10:57

by Sam Benstead from interactive investor

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Bonds screener new August 2023

Welcome to interactive investor’s ‘Bond Watch’ series, covering the latest market and economic news – as well as analysis – that is relevant to bond investors.       

Our goal is to make the notoriously complicated world of bond investing simpler, by analysing the week’s most important news and distilling it into a short, useful and accessible article for DIY investors.       

  • Invest with ii: How Bonds & Gilts work | Tax Rules for Bonds & GiltsOpen a SIPP

Here’s what you need to know this week. 

Gilt auctions arrive at interactive investor  

The Debt Management Office is opening access to gilt auctions for retail investors, an area that was previously the exclusive realm of large institutional investors.  

Partnering with stockbroker Winterflood, ii customers can participate in the coming auction of 4% Treasury Gilt 2031, a UK government bond expected to yield around 4% and due to mature in seven and a half years’ time.  

The price of the gilt will vary depending on the outcome of the auction by large investors, with retail investors getting to purchase the gilt at the “Non-Competitive Auction Price”, which is the average accepted price for the gilt. It likely to be around a 4% yield if the bond is held to maturity.  

The offer opened yesterday and will close on Tuesday 27 February. The gilt will be issued and begin trading on 29 February. There are no commission fees to participate. 

The minimum investment is £1,000, with £100 multiples allowed after that. The maximum investment is £500,000.  

John Dobson, head of investment solutions at ii, said: “This is an exciting development for retail investors, and one which interactive investor is proud to be at the forefront of.  

“Other than breaking down the barriers of access, it provides a solid foundation for retail investors to gain good yields at lower risk. By providing early access, investors get in at the average price and do not have to worry about secondary market movements and the spread on buying and selling. interactive investor also provides this commission-free.” 

Investors can read the bond’s prospectus and participate in the auction here. 

What are the advantages of gilt auctions? 

  • Compared with buying gilts on the secondary market, fees are lower. There is no commission to ii to participate in the auction, and no bid/offer spread to pay, unlike when trading gilts already in issue. 

  • Investors have more clarity on the yield they will receive, which is set following the auction, whereas yields on gilts trading in the secondary market will fluctuate depending on the market price of the gilt, and finding yield-to-maturity figures for existing bonds can be tricky. 

  • Gilts bought at auction can be held inside a tax-efficient SIPP or ISA, as well as a trading account. Income received is subject to income tax rates if held outside a tax-efficient wrapper.  

  • Yields are likely to be higher than income offered by National Savings & Investments (NS&I) accounts, which is the other way that savers can get an income from the UK government. For example, the NS&I 3-year fixed rate Green Savings Bond yields 2.95%, but a 3-year gilt currently yields 4.2%.  

  • Investors can choose to hold the gilt to maturity, and therefore do not have to worry about price fluctuations, or sell the bond on the secondary market. Any capital gains on gilts are free from tax.  

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Important information – SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial adviser before making any decisions. Pension and tax rules depend on your circumstances and may change in future.

Please remember, investment value can go up or down and you could get back less than you invest. If you’re in any doubt about the suitability of a stocks & shares ISA, you should seek independent financial advice. The tax treatment of this product depends on your individual circumstances and may change in future. If you are uncertain about the tax treatment of the product you should contact HMRC or seek independent tax advice.

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