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Index-linked gilts: how to price, value, and track them in your portfolio with our spreadsheet [Members]
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Wonderful. Personally, I like spreadsheets, and I like reading; reading about spreadsheets is a whole new level 🙂
I downloaded v1 for future use. Could you post a note in the comments in case of any updates or corrections?
Many thanks!
Heh heh. Yes, sure will.
When I click the spreadsheet link it just opens up as a new tab on Firefox. I have goggle docs on my tablet. I know how to make and edit the spreadsheet but how do I get it from the link to goggle docs.
I’m shocked that this hasn’t got hundreds of comments…
Many thanks – I got interested in I-L bonds through youthful reading of Troy, Ruffer and CGT, but has it worked for them (Arrested Development gif)? Maybe it has – it certainly should have, given how smart they all are.
But I think ultimately they are still in my ‘too hard’ pile (which sounds better than my ‘I’m not smart enough’ pile…).
It’s probably a cop-out – I’m not a gold bug, but it has seemed to work better for me as an inflation hedge.
Anyway, often things change, and I come back to look at stuff, so I’m very grateful for this and the other article, and will no doubt be reading it carefully in the future.
@Tom — Cheers, and I know. Strangely silent after the huge debate on Linkers last week, and it’s not for lack of Mavens opening and reading the page.
Maybe everyone is just linkered out 😉
Re: Gold, grateful to have some, wish I hadn’t top-sliced it a few months ago… 😉
@Garry — Sorry to hear of your troubles.
I’m not sure exactly what your asking? Are you saying the new tab doesn’t show the spreadsheet? I’ve tested I can’t recreate that here. If this is so then perhaps you have some kind of security feature blocking it?
If you can open it on any device (e.g. desktop) where you’re logged into your Google accounts (e.g. gmail or Google drive) then you should be able to save the document there and re-open it on the tablet.
With that said I wouldn’t want to edit this kind of spreadsheet on a tablet, personally. It’s quite fiddly!
Hope this helps.
This series on linkers has been so valuable as a resource. As I move into deaccumulation I’m trying to simplify matters, thinking of what happens if I get hit by the proverbial bus and leaving my spouse to deal with this stuff, would a linker component to the portfolio be a step too far? Perhaps the complexity is just in the buying…
Anyway it’s definitely food for thought and thanks for all your efforts.
@ Tom and Larsen – Thank you! I know where you’re coming from. They’ve been in my too hard pile for years as well. It’s definitely a learning curve. Not because the material is inherently hard but because it’s scattered about like the fragments of some universe-vaporising super-weapon. And there isn’t a handy manual.
Once you get past all that, linkers are pretty much just a tradable index-linked saving certificate – with a better yield these days.
Hold ’em to maturity and you can’t make a loss if you buy in at a positive yield. One thing I probably haven’t mentioned enough is that Tradeweb publish the real yields on a daily basis.
I’m really keen to set up some linkers but don’t know what I’m doing. I want to make sure I understand the principles. So please forgive what will probably be the first of several silly questions about your spreadsheet.
In the first block, the dirty price (J) for TR26,T27 and T28 is calculated differently from that of T301. It seems to be because you have n/a as the index value for T301 (column U) But today (20th November 2024), looking at https://www.dmo.gov.uk/data/pdfdatareport?reportCode=D1D, I think I can see an index value for T301 of 2.83494.
My main question is why/when is a different formula used for the dirty price for some gilts? Secondly, am I right to now use the same formula for all 4 gilts?
Thank you
Hi David,
These are excellent questions and I can see I neglected to explain the difference. My apologies!
T30I is an 8-month indexation lag linker i.e. it indexes to the inflation rate 8-months ago (as opposed to 3-months ago, which is the standard used by most index-linked gilts today).
T30I is an example of an older type of index-linked gilt. This type uses a different formula (from the 3-monthers) and its index ratio should not be used.
TR26, T27 and T28 are examples of 3-month indexation linkers. This type have effectively succeeded the 8-monthers and their formula does require the index ratio.
There are only two 8-monthers left in circulation: T30I and T2IL.
Thank you.
I think this spreadsheet is a masterpiece!
I bought a very small amount of TR26 – UK Index Linked Gilt 2026 on 22/11 – Friday. I can leave a comment on that over in the ‘How to buy index linked-gilts’ post.
Anyway, the purchase was done on Friday, with Settlement on Tuesday 26/11. I plugged the values from my broker’s contract note in here and it all worked perfectly.
Even better than that, although I had to wait until the 26/11 the indexation ratio was published by the DMO, I found that plugging in all the data, including the settlement date and the ‘units double check’, I could use the goal seek function to tell me what the indexation value should be when it was published, to make the other figures make sense.
When it was published, it was correct, to 5 decinal places that the DMO use, so super impressive.
Thanks, Jam. It’s great to hear the spreadsheet helped. I was hoping it’d encourage more people to dip their toe into linkers but the muted response to this post makes me think it’s still too beardy an area for most.
Appreciate hearing about your experience on the other thread, too.
I’m retired and am happy with the current value of my share portfolio.
I’m not looking for further capital growth but do want to be protected from inflation.
While I procrastinate the value of my portfolio increases but Monevator has educated me in the dangers of that!
I’m very keen to dip my toe into linkers and then hopefully go in up to my waist.
Thank you for what you’ve written on this topic.
I tried to buy some gilts (T27) through IWeb and it gave me a clean price in line with expectation.
When I tried to make a trade it said it could not be completed automatically but had to be submitted as a negotiated order.
Is this normal? I don’t like buying something when I don’t know the price.
Hi David – I’m guessing that you have to place a telephone order? Is that what they mean by a negotiated order?
Snowman reported his experience with Halifax Share Dealing which is essentially iWeb under a different brand name:
https://monevator.com/how-to-buy-index-linked-gilts/#comment-1844172
He was able to buy his linkers online but neither were T27. It seems some brokers are running a hybrid system of online and telephone orders depending on the bond.
The article linked to above summarises the experience of a number of Monevator readers who’ve bought linkers via telephone trades – which is standard at a number of brokers.
The broker will give you an indicative price (which to be fair, is what I get when I place an online order).
That indicative price – whether clean or dirty should be close to the price you can see on Yieldgimp or using the spreadsheet attached to this article.
So far, nobody’s reported anything amiss. The system does seem to work, it’s just arcane like a wizard’s beard.
Thank you for your further comment and apologies for not responding more quickly.
I’m not asking for a response to this post. Just letting you know what happened in case that’s useful.
I didn’t raise a telephone order.
I simply allowed iWeb to submit a ‘negotiated order’ and then got notification of a trade about 30 minutes later. The price was very close to the clean price when I first attempted to make a trade.
This trade was for a trivial amount so I wasn’t concerned about the price. But I’m temperamentally uncomfortable about committing to spend a lot of money on something when I don’t know the price.
I remain very keen on linkers and will be reading through your posts and looking to other sources so that I can use them.
Thank you again for your posts on this topic.
To add to comments by others the articles on linked gilts have been very useful. Another option on the defensive side of the portfolio. Maybe held outside of an ISA as I understand you don’t pay CGT although you may pay tax on interest. I have purchased a few to test how it works. The way platforms display the clean price like you have made an immediate loss is off putting. Ill give it a little more consideration before purchasing more but definitely an option worth considering.
Good morning. I am a brand new member and struggling to understand index linked gilts. I have taken a look at the spreadsheet and will need to take quite a few more looks to understand it properly !! I wondered if fellow readers could ‘pull apart’ this simple scenario.
Say an individual has just retired and only (luckily) needs their portfolio to match inflation to provide the lifestyle required.
They have a portfolio worth 300,000 and need 10,000 a year for their desired lifestyle. They guess they will live for another 30 years.
Could they ‘simply’ on day 1 of retirement buy 10,000 GBP of index linked gilts each maturing one year after the next between year 1 and year 30. When an individual initial 10,000 GBP gilt matures it will ‘pay’ enough back to ‘live their life’ until the next gilt matures the following year and so on and so on ? Does the scenario fall down because there is an implied inflation in todays gilt price so this only protects if inflation turns out to be higher than that implied in todays pricing ? … if so then how can this implied inflation be protected against ? I know I am missing something …. perhaps a lot … all comments welcome
thanks
Miles
@Miles – this article and accompanying spreadsheet deals with the scenario you’re describing: https://monevator.com/index-linked-gilt-ladder/
That said, when you buy linkers today, the price includes inflation as measured by the RPI index – with a lag of three months. In other words, the price in Feb includes all changes in RPI up to November. Not implied inflation but actual inflation.
So £10,000 spent today on linkers buys £10,000 worth of linkers in today’s money – providing we’re not overly concerned with the index-lag, which we shouldn’t be.
So let’s say you want to live on £10,000 at the end of year 1 (adjusted for any inflation accrued in the mean-time).
You buy enough linkers so that their maturity value in one year plus any interest earned in the meantime = £10,000.
All of the linker’s cashflows will automatically adjust in line with inflation during that year because that is how the security is structured. If inflation goes up then that increase will be included in the interest and maturity value you receive as and when the linker pays out.
The same goes for the linkers bought to cover years 2 – 30. You buy enough in today’s money to cover your £10,000 income needs per year. The inflation-adjustment mechanism of each linker covers you for inflation going forward.
So, essentially I’m saying that you’re accurately describing how an index-linked gilt portfolio works when structured to deliver inflation-protected income.
But the price doesn’t include implied inflation it includes actual inflation.
Implied inflation is contained within the yield of nominal gilts. Nominal gilts provide insufficient protection against inflation if it proves higher than expected. But nominal bonds outperform linkers if inflation proves to be lower than expected. You may have read descriptions of the “breakeven rate” which could be where this idea of implied inflation has arisen?
Anyway, I hear you when you say it’s a struggle to get to grips with bonds. It really is!
You should be able to find most of our coverage here:
https://monevator.com/tag/index-linked-gilts/
I hope this helps!
@Miles #18
What you have described will work, it is a an Index Linked Gilt Ladder, as @The Accumulator has said. You will get you investment back, increased in line with actual inflation, plus a small amount extra (the real yield) over the the 30 year period.
Here is a link to a useful site: https://www.yieldgimp.com/index-linked-gilt-yields
See the column ‘Yield’ / ‘(Real)’, for the real return you will get.
So you plan is sound, unless of course you live longer than 30 years!
Taking a step back, what you are trying to do it seems is to come up with a plan to live of a pot of money, for the rest of you life and not lose spending power in real terms, not knowing how long you will live. This is an old investment problem and it is not the first time it has been considered.
Can I suggest reading the book ‘Living Off Your Money’, by Michael McClung. It is a bit of a favourite in these parts. Expensive, but it will replay the cost many times over. It goes through the problem and comes up with what I think are better solutions than the index linked gilt ladder and has heavily influenced my own approach to the problem you describe.
I just used your spreadsheet to help to make my first (test) linker purchase. There’s one thing that I couldn’t figure out and that is how to tell if you are buying a linker from the market at a premium or not, after the inflation and accrued interest adjustment? I can see that the inflation adjusted clean price on the spreadsheet results from multiplying the index ratio with the clean price from the LSE (or implied clean price), and I can see where the dirty price is coming from (inflation adjusted clean price + accrued interest). And I can compare to the indicative broker dirty price before placing the order and on the actual price on the contract note. But how do I tell if I’m paying over or under the odds for a particular linker on its journey towards maturity? Sorry if I’ve missed the obvious…
@Ian #21
>how do I tell if I’m paying over or under the odds for a particular linker on its journey towards maturity?
You will end up paying what the market price is, which can obviously fluctuate depending upon a whole host of things, including expectations of inflation.
However, I think what you want to know is at what price will the IL Gilt be redeemed at. That price is £100 Clean, increased by the up-lift in inflation, i.e. the dirty price at maturity.
Looking here:
https://www.londonstockexchange.com/stock/TR26/united-kingdom/company-page
you see the clean price of TR26 is roughly £100, so you won’t make any gain or loss there. Back as recently as 2022, you can see the clean price was £116, so you would have paid out £116 (clean), to get £100 (clean) back. The real yields on them were negative, this is how that negative real yield showed up in the price.
If you look at TG51, the clean price is roughly £58 now, so you will make a nice profit, as the clean price increase to eventually be £100 at maturity.
Does this help?
YieldGimp.com is now an app, but this is an alterntive website:
https://dividenddata.co.uk/index-linked-gilts-prices-yields.py
The real yield to maturity is in the right most column.
@Ian – apologies if I’ve misunderstood the intent of your question, but you just use the clean price. The clean price effectively exists to tell you if you’re buying over or under par. Above £100, you’re paying above par i.e. the bond is paying a higher rate of interest relative to new issues. Below £100, you’re paying below par i.e. the bond is paying a lower rate of interest relative to new issues.
You strip out inflation in order to get that information.
I don’t think the bond’s price should be construed as paying over or above the odds. The price above or below par is a mechanism to adjust yield-to-maturity. YTM (or real yield in the case of linkers as Jam says) is your return and can be compared to other investing opportunities – adjusted in light of the risks you’re hoping to manage 🙂
Equivalent bonds of the same type and maturity will offer the same yield-to-maturity or else they become illiquid. So if you want a linker that matures in 2028, then any linker that matures in 2028 should offer approx the same yield. (In reality you almost always only get a choice of one linker per year but that’s by the by.)
As Jam says you will make a capital gain as a below par bond’s market price returns to £100. This is to compensate you for its paltry interest payments relative to what the market demands for holding debt today.
If the price is above par then you don’t make the capital gain – in fact you make a loss – but the compensation is the bond’s higher rate of interest (the coupon column on the website Jam linked to).
Long story short, real yield is where it’s at. They’re pretty high at the mo.
@Jam & TA – thanks that’s very helpful and makes perfect sense, but there’s still a gap in my understanding. There are some IL bond prices well over £100. For example, T30I with a particularly high coupon rate of 4.125 maturing in 2030, a price today of £340 and a yield to maturity of minus 19.838. So potentially a big capital loss at maturity. I’m struggling to understand the logic of why anyone would now invest in that – if you can help me figure that out I’d be really grateful!
The YTM you’re quoting for T30I isn’t right. Perhaps because the site you’re quoting can’t cope with 8-month linkers?
Tradeweb is showing a yield of 0.58% for T30I on 22 Apr 2025. It matures 2030, so we’d expect its yield to fit in between the yields for the 2029 and 2031 linkers.
Again quoting Tradeweb, 22 Apr:
2029 yield is 0.38%
2031 yield is 0.67%
So that 2030 yield of 0.58% looks about right.
T30I has a huge coupon versus other linkers. So the high clean price, and the capital loss implied, is required to reduce its return to a yield that makes sense relative to similar linker investments.
Despite the capital loss, you’d still earn an inflation-adjusted return of around 0.58% per year as long as you hold until maturity in 2030. So T30I is every bit as competitive as similar inflation-linked gilts. The dodgy yield you’re seeing is what’s throwing you.
Hopefully that makes sense? I personally find bonds very counterintuitive and it doesn’t help when websites throw up weirdness like that minus yield.
Thanks TA, that clarifies things. It’s the LSE website showing the confusing minus yield to maturity. I’ll register for Tradeweb, but in the meanwhile ShareCast just now shows the T30I Gross Redemption yield as 0.57% so close to what you saw on Tradeweb.