Bonds effective yield

[raysor]

Say I have some Treasury 5.75% 2009 (Dec mat) standing at 104 When should I sell to maximise my profit?

 

[Rhody Trader]

Say I have some Treasury 5.75% 2009 (Dec mat) standing at 104 When should I sell to maximise my profit?

The point at which you believe rates are going to stop falling and start rising.

 

[raysor]

what about the redemption though?

 

[A Dashing Blade]

what about the redemption though?

The redemption is counted as a cashflow and included in the YTD caculation.

 

[raysor]

oK but I am thinking the stock is now 104 and will reduce to 100 before Dec 2009. Presumably it is discounting our next rate cuts of 1.5-2% so there must be an optimum time before the redemption to sell it?

 

[Rhody Trader]

oK but I am thinking the stock is now 104 and will reduce to 100 before Dec 2009. Presumably it is discounting our next rate cuts of 1.5-2% so there must be an optimum time before the redemption to sell it?

There doesn't have to be. If you are receiving a better YTM on the bond now than what you would get if you reinvested then you would be foolish to sell.

 

[raysor]

There doesn't have to be. If you are receiving a better YTM on the bond now than what you would get if you reinvested then you would be foolish to sell.

Thanks. Problem is I paid around 102. so potentially I have 1.5 years dividends to come and a potential capital loss of 2 against a potential gain of 2 now (and less interest). The YTM at 104 is 1.785%
I presume the YTM at 102 (about a month ago) would not have been a lot different. The main reason was to park the money in a safe haven rather than in a UK bank when things were looking a lot dodgier.
So,as you say the decision is what rate I can get elsewhere.

 

[A Dashing Blade]

Current YTM at 104.22 = 1.623%
YTM two months ago @ 102 = 2.172%

Bearling in mind that capital gains on gilts are tax free, I'd be tempted to sell up and stash the money in the bank.

 

[raysor]

Yes that's what I think!
Thanks everyone.