How does one buy gilts?

[fivemack]

Suppose, lunatic that I am, that I wish to leave the comfortable safety of FCSC-insured cash ISAs and head, rather than to the flaming whirlpool that is the UK equity market, to the choppy waters of index-linked UK gilts, where my money is at least wrapped in Her Majesty's third-best ermine mantle against the unknown possibilities of inflation.



My share-dealing service, if I enter 'IL TREASURY', says

'2 1/2% IL 11 2 1/2% IL TREASURY 11 TR2H 247.85 08:24 20/10 -0.20% 290,158,120 '

I presume this is a bond which will mature in 2011, and which pays 2.5%+RPI annually. 08:24 20/10 is the time and date of the last update, which seems a bit peculiar since the 290,158,120 last figure is apparently the volume of those bonds traded today ...

Googling for "2 1/2% index linked treasury 2011" gets me

http://www.bankofengland.co.uk/publications/news/2001/081.htm

which I think means that this was a thirty-year bond issued on 22 January 1982, and indeed, using the data from

http://www.statistics.gov.uk/downloads/theme_economy/RP02.pdf

247.85 is broadly consonant with the RPI figure from 1982 to date.

So: if I buy a hundred units of this bond for £247.85, then

http://www.bankofengland.co.uk/publications/news/2009/003.htm

tells me that HMG will give me £3.56 on 23 August 2009. My assumption is that I get some similar sum on 23 August 2010, some similar sum on 23 August 2011, and then, on 22 January 2012, some sum equal to 100 times the ratio of the RPI on 22 January 2012 and on 22 January 1982; or at any time I can sell the bond to somebody else for whatever the market has determined the price should be. Is this correct?

Whether correct or not, it seems unlikely to be terribly useful because the share-dealing service doesn't give me the 'trade this instrument' button. I suppose the sane thing to do is to buy an investment trust or unit trust which wraps the bonds, and the even saner thing to do is to buy an index-linked savings certificate from National Savings, which ( http://www.nsandi.com/products/ilsc/rates.jsp ) pays RPI+1% over three years. Any recommendations?

NB my bed-frame is slatted so money stored under the mattress will just fall out

Comments

[dd-b.livejournal.com]

I'm not going to be your answers, of course; I don't think I even know the American equivalent answers. Nope, more questions -- what's "RPI"?

And, if the money falls through the slats, well, it's *still* under the mattress, after all; just a little FURTHER under.

[fivemack.livejournal.com]

RPI is the Retail Prices Index, it's one of two official UK government measures of inflation, the other being the CPI, Consumer Prices Index. The RPI includes housing costs, so has gone down a lot in the last few months as the interest paid on tracker mortgages has decreased; the CPI doesn't.

For the last few years the RPI has reliably been above the CPI, and so the fact that gilts were RPI-indexed seemed generous, but this is no longer the case.

http://www.marketoracle.co.uk/images/Nadeem_12_6_07a.gif has a graph of RPI and CPI for Jan 2000 to May 2007; http://www.statistics.gov.uk/images/charts/19.gif has the graph for February 2007 to today.

[naath.livejournal.com]

Retail Prices Index. It is one of the available measures of Inflation (the other common one is CPI - Consumer Prices Index). http://en.wikipedia.org/wiki/Retail_Prices_Index_(United_Kingdom)