An interesting point. I think that the implied inflation in T68 is too high, and therefore I think that it's price is too low. Hence I think that it is likely to do very well in the future as inflation expectations reset lower. I also think that it is difficult to find conventional gilts of a similar duration as ILG's have very low coupons and most of their return comes from a single cash lump sum on maturity. Also, I think that conventional gilts of the same duration should have the same yield as the ILG's. If inflation expectations come down then the yields of both should come down by a similar amount IMO. Hence it should not matter much which one you are in. Do you agree?
I am a bond novice, so I would not pay too much attention to my ideas. I see that due to the index linked capital return, the duration will be longer than the equivalent fixed interest gilt. I think that the total return would be simillar, assuming market expectations of inflation are correct. The only reason to doubt that, would be if there was strong demand for ilg's from pension funds matching their liabiliites, but that didn't seem to be a factor in the sell off of recent years. So your strategy seems to be correct if you are looking for maximum duration/price movement. I bought some TG48 ILG in august 23, when the yield felt attractive, to diversify out of equities, and provide an investible capital reserve if we have a US stockmarket crash, which would likley drag the rest of world's equities down with it. If no good oppportunity presents then I will hold as a long term investement (ilg's if held long term cannot be the worst investement choice). I will buy some more if longer dated fixed yields go back up to 5.00. Thanks for all the videos they are very well prepared, with the special interest topic each week etc. Best Regards George
Don't worry I have plenty of poor choices I am not talking about. My purchase was partly inspired by your conviction, they were not a bad choice at a higher price.Maybe we are suffering from some recency bias after a long period of low rates, which made us jump in a bit early. At least you know if you hold them to 2068, you will have a safe investment, to pass to the next generation. It could be a good strategy in case we become more senile.
RE: T68 if you think the implied inflation if too high, would it be logical to buy a fixed rate bond of the same duration (ignoring the income tax) ?
An interesting point. I think that the implied inflation in T68 is too high, and therefore I think that it's price is too low. Hence I think that it is likely to do very well in the future as inflation expectations reset lower. I also think that it is difficult to find conventional gilts of a similar duration as ILG's have very low coupons and most of their return comes from a single cash lump sum on maturity. Also, I think that conventional gilts of the same duration should have the same yield as the ILG's. If inflation expectations come down then the yields of both should come down by a similar amount IMO. Hence it should not matter much which one you are in. Do you agree?
I am a bond novice, so I would not pay too much attention to my ideas. I see that due to the index linked capital return, the duration will be longer than the equivalent fixed interest gilt. I think that the total return would be simillar, assuming market expectations of inflation are correct. The only reason to doubt that, would be if there was strong demand for ilg's from pension funds matching their liabiliites, but that didn't seem to be a factor in the sell off of recent years. So your strategy seems to be correct if you are looking for maximum duration/price movement. I bought some TG48 ILG in august 23, when the yield felt attractive, to diversify out of equities, and provide an investible capital reserve if we have a US stockmarket crash, which would likley drag the rest of world's equities down with it. If no good oppportunity presents then I will hold as a long term investement (ilg's if held long term cannot be the worst investement choice). I will buy some more if longer dated fixed yields go back up to 5.00. Thanks for all the videos they are very well prepared, with the special interest topic each week etc. Best Regards George
Congratulations on your timing, which was a hell of a lot better than mine. @@georgejamieson3555
Don't worry I have plenty of poor choices I am not talking about. My purchase was partly inspired by your conviction, they were not a bad choice at a higher price.Maybe we are suffering from some recency bias after a long period of low rates, which made us jump in a bit early. At least you know if you hold them to 2068, you will have a safe investment, to pass to the next generation. It could be a good strategy in case we become more senile.