With Bank Rate at 3.75% and the latest 3-month Treasury bill tender clearing at 3.97%, refinancing all 26 qualifying gilt issues onto rolling 3-month bills would save an estimated
£4.03bn
of interest over the next year.
The ten biggest prizes below account for £2.19bn of that.
The top ten
| Gilt | Coupon | Matures | Nominal in issue (£m) | Running yield | Spread vs bills | Saving next year |
|---|---|---|---|---|---|---|
| 6% Treasury Stock 2028 | 6% | 2028 | £20,731 | 5.83% | 135 bp | £287m |
| 4 3/8% Treasury Gilt 2054 | 4.375% | 2054 | £32,128 | 5.56% | 107 bp | £270m |
| 4 3/4% Treasury Gilt 2043 | 4.75% | 2043 | £34,875 | 5.36% | 87 bp | £270m |
| 5 1/4% Treasury Gilt 2041 | 5.25% | 2041 | £25,250 | 5.48% | 99 bp | £239m |
| 4 1/4% Treasury Gilt 2055 | 4.25% | 2055 | £28,320 | 5.53% | 104 bp | £227m |
| 4% Treasury Gilt 2060 | 4% | 2060 | £25,722 | 5.52% | 103 bp | £193m |
| 4 3/4% Treasury Gilt 2035 | 4.75% | 2035 | £41,812 | 4.95% | 46 bp | £184m |
| 4 7/8% Treasury Gilt 2036 | 4.875% | 2036 | £32,907 | 5.06% | 58 bp | £183m |
| 4 1/2% Treasury Gilt 2042 | 4.5% | 2042 | £29,019 | 5.18% | 69 bp | £174m |
| 4 1/4% Treasury Gilt 2046 | 4.25% | 2046 | £26,714 | 5.25% | 76 bp | £165m |
Putting that in context
- £500m
- the UK Space Agency’s annual budget.
- £1bn
- a new Type 26 frigate.
- £2bn
- the annual winter fuel payments.
- £4bn
- an aircraft carrier.
Assumptions
- Bill yields are the average accepted yields on the latest 3- and 6-month tenders.
- The 3v6 forward is implied from the 3- and 6-month spot yields using simple interest on an actual/365 day count.
- The 6v9 and 9v12 quarters extrapolate the last observed step of the forward curve at a halving pace.
- The rolling annual yield of 4.49% compounds the four quarterly rates over 91.25-day quarters.
- The cut off for qualification is 25 basis points above the rolling annual yield.
- Every qualifying issue is assumed to pay a full year of coupons.
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