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Inflation Measure for Index-Linked Gilts.

Gilts, bonds, and interest-bearing shares
Parky
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Inflation Measure for Index-Linked Gilts.

#176815

Postby Parky » October 29th, 2018, 8:12 am

National Savings have just announced a switch from RPI to CPI for index-linked savings certificates. Will index-linked Gilts be next?

scrumpyjack
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Re: Inflation Measure for Index-Linked Gilts.

#176825

Postby scrumpyjack » October 29th, 2018, 8:49 am

The change to CPI does not affect existing indexed linked certificates. Only when they expire and you renew is the change effective.

Similarly the terms of Indexed Linked Gilts in issue and linked to RPI cannot be changed.

They can of course issue new ILGs lined to CPI and not RPI if they wish to

stevensfo
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Re: Inflation Measure for Index-Linked Gilts.

#176928

Postby stevensfo » October 29th, 2018, 4:35 pm

The change to CPI does not affect existing indexed linked certificates. Only when they expire and you renew is the change effective.


Thank God for that!

I worked in France 25 years ago, long before discovering TMF, and even then, colleagues were joking how the french government kept changing the way they calculated the inflation rate to keep it as low as possible.

I reckon that most of us on TLF use RPI and will continue to do so. The CPI uses funny things like Hedonic regression analysis which is just a big scam, worthy of Orwell.

The advantage for me is that I will just have to deploy the NS&I cash somewhere else.

Or spend it. :-)

Steve

yorkshirelad1
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Re: Inflation Measure for Index-Linked Gilts.

#177199

Postby yorkshirelad1 » October 30th, 2018, 5:12 pm

Parky wrote:National Savings have just announced a switch from RPI to CPI for index-linked savings certificates. Will index-linked Gilts be next?


Here's the announcement from NS&I
https://nsandi-corporate.com/news-research/news/nsi-confirm-index-linked-savings-certificates-move-rpi-cpi
It specifically says "The change will be applied to all Certificates that mature on and after 1 May 2019" and "The change from RPI to CPI will only affect NS&I Index-linked Savings Certificates. Index-linked gilt payments will continue to be linked to the RPI."

There was mention of this in the budget documents yesterday as well.

dealtn
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Re: Inflation Measure for Index-Linked Gilts.

#178785

Postby dealtn » November 7th, 2018, 2:28 pm

Late to this (as usual?).

I spent the last few years running the "linker" part of the business within a GEMM. The issue of change from RPI to CPI (or something else) has been investigated and "consulted" upon a number of times involving the DMO, and both the buy and sell sides of the industry. The fact it hasn't happened (yet) demonstrates how difficult it will be to implement.

The general consensus then (and I doubt a huge amount has changed since) is that any change will apply to new issuance not existing issues. Not the same thing at all but comparisons can be drawn between the implementation of the "new" 3 month lagged gilts vis-à-vis the then current 8 month lagged gilts. 8 month "old" linkers still exist and look likely to remain in issue until redemption (2035).

The strong suspicion is that the same will apply as and when any index changed occurs. The DMO could in theory offer "switch auctions" to facilitate any change, but didn't with the 8 to 3 month lag transition, and holders of the 8 month only "suffer" due to lesser liquidity than the replacements. (Traders suffer more).


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