I have been reading about UK Gilt and have some questions understanding it.

For instance, the TREASURY 3,3/4% 2019 Gilt has a coupon of 3.75%. The maturity date is September 7th 2019. Interest is paid half-yearly on 7 March and 7 September. The current buy price on Hargreaves Lansdown (HL) is £100.84.

Question 1: If I decide to buy the Gilt today with £100.84, does it mean on the maturity date I will receive the nominal price £100 plus my half year interest 100*3.75%/2 = £1.875 (Excluding the charges on HL)?

Question 2: On the Prospectus, it says "The amount payable on application in the case of a non-competitive bid is £104.50 per £100 nominal of the Gilt." How do I tell if the Gilt I bought is non-competitive or competitive bid?



Question 1 can be answered by the prospectus. Interest accrues (starts adding up) from July 2009. But since it's inconvenient to pay fractional cents of dividend daily, accrued interest is only paid biannually. Interest accrued between 2019-03-07 and 2019-09-07 is paid on 2019-09-07

[edit] Gilts have two different prices quoted, "dirty" and "clean". The dirty price is the clean price plus accrued interest. The UK Debt Management Office conveniently quotes both; todays clean price was 100.71 and the dirty price was 101.718832. That means approximately 1.01 pounds of interest has accrued so far. And if you want to buy that bond, you can't buy just the bond, you also have to pay for the accrued interest, so you pay the dirty price.

You'll get 101.875 for an investment of 101.719, so that's £0.166 of profit in 3 months. (Excluding transaction costs)

Question 2 is simple; you're looking at the prospectus for the initial market offering. (Applicable if you were buying the Gilt straight from the UK government in 2009). And the price quoted there is the price you would pay (or bid) to the UK government. Now in 2019, you're paying market prices to existing owners. The prospectus only matters for the terms of the Gilt (see Q1)

  • I'm still confused. Question 1: Is my calculation about the interest correct? Does it mean as long as I buy the Gilt before 2019-09-07, I will always get the interest? Question 2: You mean this prospectus is only about buying the Gilt. On 2019-09-07, no matter if I'm the competitive/non-competitive bidder, I will always get £100 back for each Gilt I bought, right? – Elsa Jiu Jun 11 '19 at 16:43
  • @ElsaJiu: Prospective and non-prospective bidders were a thing in 2009, not in 2019. – MSalters Jun 11 '19 at 22:33
  • Thanks for the detailed reply! I still have a doubt. You mentioned that I will pay £101.719 to get back £101.875. Do you how the dirty price (£101.719) is related to the buy price (£100.84) on HL? Thanks! – Elsa Jiu Jun 13 '19 at 13:03
  • @ElsaJiu: Where do you get a "buy price" of £100.84 ? That appears to be a clean price. I have no idea what you mean with a "buy price" here. – MSalters Jun 13 '19 at 13:05
  • I get it from here: hl.co.uk/shares/shares-search-results/t/treasury-3,34-2019. Currently it says buy price is £100.81 – Elsa Jiu Jun 13 '19 at 14:27

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