Gilts - Explained
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- Опубліковано 16 чер 2024
- What are Gilts?
Richard Murphy is a chartered accountant. After training with what is now KPMG he established his a firm of accountants in London, of which he was subsequently senior partner, in parallel with a career as an entrepreneur and company director which lasted until his early 40s. He then moved to a career in campaigning and academia. He co-founded the Tax Justice Network in 2003, the Green New Deal in 2008, the Fair Tax Mark in 2013 and the Corporate Accountability Network in 2019. From 2015 to 2020 he was Professor of Practice in International Political Economy at City, University of London and is now Visiting Professor of Accounting at Sheffield University Management School. His best known book is ‘The Joy of Tax’.
Follow Richard on his Twitter: RichardJMurphy or on his blog: www.taxresearch.org.uk/Blog/
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20 seconds in and hitting us with the jokes already
Good explanation, cheers
cheers donny good explanation
Well explained
Thank you 😊
Towards the end, Richard, you say that of the 1.75 trillion of gilts currently on issue, "they own about 700 billion". Who are "they"? I assume you mean the Government itself (as a result of quantitative easing) - am I right?
what happens if interest rates rise and the gilt market rises too!? seems to me as soon as people feel like they cant loose money all hell breaks loose..
As we have seen with Russia, the government having plenty of money does not completely rule-out a technical default.
Good intro lol
What do u mean ' untill they wish to pay'? And why dnt u explain the risk?
I thnk u want to reflect on ur rather patronisin unhelpful talk on gilts wich left more question than answer.🎯
Why doesn't the price correspond directly with the yield? Wouldnt a higher interest rate mean more income from a gild?
Simplified:
Imagine you have 2 Gilts, both have 1 year left before they run out. Gilt 1 have a 3% interest and Gilt 2 have 6% interest.
Since they both run out at the same time, the "risk" is the same. So the "marked" want the same return on the 2 gilts. So lets imagine that the "marked" want 9% return (due to inflation, other possible investment options etc.).
What we then need to do is adjust the price of the 2 gilts, so the "real" interest rate for both of them is 9%.
Gilt 1 (3%): 103*(1-(1+0,09)^-1)/0,09 = 94,50
Gilt 1 (6%): 106*(1-(1+0,09)^-1)/0,09 = 97,25
So, if you buy Gilt 1 (3%) to a price of £94,50 then in 1 year when it run out you will get £103 back. £100 since that is the underlying value on the gilt + £3 from 1 year of 3% interest. And since £103 is a 9% gain from your investment of £94,50. You have in reality had a 9% gain.
Same with our Gilt 2 (6%): here you need to pay £97,25 and after 1 year you will get back £106. Again £100 since that is the underlying value on the gilt + £6 from 1 year of 6% interest. And again is you actual gain a 9% profit.
NOTICE: I have simplified this a fair bit
Why do they sell T-bills with a maturity rate of less than one year
Why do they sell T-bills with less than one year maturity
Gilt Vibretion energy level 40
Then why do they say that government borrowing costs increase when there is fear of say UK government defaulting?
This is because they have to pay a higher coupon rate to attract investors because they are now a “riskier” creditor
@@Econpopp Thank you so much for the answer. I also don't understand how the UK government can default. Why would someone think so?
@@josephx1807 you’re spot on it’s highly unlikely for a sovereign to default but usually they would enter into negotiations with holders to change terms/restructure the debt as opposed to just not paying
because of all the recent tax cuts (now reversed for the most part) there is concern over how the uk government can pay their debts
government makes money 3 ways - tax, borrowing, printing
So when they cut taxes(usually political decision) it causes disruption in the gilt market
(Very simplistic explanation of things)
@@Econpopp Thank you so much Sandi for that clear explanation. I now get it.
why can't Joe Public use this way to save? My ISA pays nothing
They can but the interest rates are very low too.
An individual can buy government bonds if they want. There's nothing stopping you. Probably not a good idea at the moment though as interest rates and therefore yields are very low.
Depends what isa you invest in, my stocks and shares ISA's in both fidelity and Vanguard have both made well above 5% return a year.
@@jpmcc1207 Not anymore they won't. That's the risk you take with assets like equities and to a lesser extent real estate - these asset classes give you a potentially increased return but at an increased risk: there is no such thing as free money in the financial world. Any free money is attached to a corresponding risk.
At the moment, the best place to park your cash is in gilts and to a lesser extent savings accounts. However with current volatile interest rates I wouldn't even look into gilts, not even 6 month ones. The BoE is still raising rates. If there were such things as 1 month gilts that would be beautiful. But at the moment I'd sit tight in a 2.75% instant withdrawal savings account until the BoE stops raising rates, and then buy some 6 month and 1 year gilts.