Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Credit Spreads.

Gilts, bonds, and interest-bearing shares
Smallholding
Posts: 10
Joined: October 11th, 2017, 7:26 pm
Has thanked: 1 time
Been thanked: 1 time

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
Lemon Slice
Posts: 663
Joined: December 10th, 2016, 7:16 pm
Has thanked: 24 times
Been thanked: 114 times

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
Lemon Quarter
Posts: 4351
Joined: November 8th, 2016, 11:14 pm
Has thanked: 1590 times
Been thanked: 1582 times

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
Lemon Slice
Posts: 663
Joined: December 10th, 2016, 7:16 pm
Has thanked: 24 times
Been thanked: 114 times

Re: Credit Spreads.

#93125

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

Or perhaps the OP just picked the wrong Gilt ?


Return to “Gilts and Bonds”

Who is online

Users browsing this forum: No registered users and 11 guests