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Credit Spreads.

Gilts, bonds, and interest-bearing shares
Smallholding
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Credit Spreads.

#89189

Postby Smallholding » October 18th, 2017, 9:27 pm

Having read some of the posts from earlier in the year I found one relating to AV.A 8.75%. Basically it was about how to estimate the reduction in price caused by a 1/4 point rise in interest rates.

Based on the current price I make the possible reduction as a result of the expected hike in November down to 158.48 from where they are at 166. Possible being the operative word.

Against this with the 2060 Gilts at 1.5%? Credit Spread is 3.77%. Hiriskpaul suggested <2% to be a sell signal for him.

Would any kind soul be willing to check this out? I haven't done this before. My maths is probably up the creek.
Also what is the significance of 2% ? Is it just at this margin the risk is not worth it?

With inflation ticking up my interest is growing.
I've just reread that last sentence and it just proves how poor my maths really is.
SH

colin
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Re: Credit Spreads.

#93066

Postby colin » November 4th, 2017, 2:16 pm

Fridays mid price about 170p , just goes to show the limitations of such formulas.

GoSeigen
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Re: Credit Spreads.

#93117

Postby GoSeigen » November 4th, 2017, 5:44 pm

Smallholding wrote:Having read some of the posts from earlier in the year I found one relating to AV.A 8.75%. Basically it was about how to estimate the reduction in price caused by a 1/4 point rise in interest rates.

Based on the current price I make the possible reduction as a result of the expected hike in November down to 158.48 from where they are at 166. Possible being the operative word.


This was a mistake in the OP. There is no relationship between interest rates and the price. So one should expect no systematic reaction of the market to a change in interest rates. The relationship which is predictable is the effect of a change in yields on price.


Predicting how yields will move is an art, not a science.


GS

colin
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Re: Credit Spreads.

#93125

Postby colin » November 4th, 2017, 6:11 pm

Or perhaps the OP just picked the wrong Gilt ?


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