September 15 2017 at 7:03 pm
Could you please explain, for the uninitiated such as yours truly, the circumstances in which the Gilt holder would lose (some of) their money?
Would this occur only if/when they all suddenly attempted to sell the Gilts on the secondary market *before* maturity, then?
(Because assuming they held them to maturity, is it not the case that UK Treasury would redeem them at the full price initially paid for them?)
Clearly you are angered by those posting above who insist you are wrong, but I’m not doing that, I’m just curious as to at which point, and the mechanism by which, the holders of Gilts would lose some of their money?
Richard Murphy says:
September 15 2017 at 7:57 pm
The loss is if there is a sudden movement in price for external factors which requires, for example, accounting revaluation across a whole portfolio indicating significant financial stress vene if the plan is to hold ot redemption
In those situations, ignored by those commenting, real stress arises irrespective of theoretical pricing models
And it does happen
September 15 2017 at 7:25 pm
The talk was very interesting, and the discussion afterwards. I was surprised there were so many empty seats in the room.
Richard, I can’t find a source for the research behind Daniel’s gilt graph. Is it (or the data) available somewhere?
Can you confirm: is it showing that the current market price of gilts is much higher than the nominal principal amount? (Which is what you might expect, if the interest on the gilt is significantly greater than the current rate of interest.) Or is it showing that the current market price of gilts is much higher than the sum of the nominal amount of the principal *plus* the nominal amount of the future coupon payments? And if the coupons are taken into account, at what discount rate? Thanks.
Richard Murphy says:
September 15 2017 at 7:55 pm
The differential is market price to nominal
I was a little disappointed with attendance : NGOs really need to learn to overbook
Sheesh, and as before, this guy teaches economics at an accredited university….