Brokers warn on rush into gilts: Vivien Goldsmith reports on an effort to woo the public

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The Independent Online
THE Bank of England denies it is mounting a high-pressure sales campaign to promote gilts to the general public to help fund the Government's debt.

But for the first time the general public is being wooed to take part in a gilts auction - usually the preserve of the City institutions.

Advertisements are appearing in newspapers that allow readers to write a cheque, clip a coupon and send off the form to receive gilts - in much the same way that the big privatisation issues were sold.

But the opening out of the gilts auction comes just as private-client stockbrokers are cooling on the attractions of gilts.

The auction is of 71 4 per cent Treasury Stock 1998. There is already pounds 2.75bn of this issue trading in the market, and the Government is selling another pounds 3bn chunk of this five-year stock, with a minimum investment of just pounds 1,000.

Gilts are launched with a pounds 100 price tag, but the relatively attractive 7.25 per cent coupon means that the market is prepared to pay more to get the income and it is now trading above par at 10030 32 .

Much like previous BT issues, the public is being invited to pay an unknown price for the new stock - the average of the price bid by the professionals in the auction, which takes place on Wednesday. The public will need to get their applications to the Gloucester address by 10am on Wednesday or handed in to the Bank of England by 3.30pm on Tuesday.

Payment comes in two parts. Firstly investors will have to pay pounds 53 for every nominal pounds 100 of stock, and then a further pounds 50 per pounds 100 on 20 May.

A refund for the likely overpayment will be sent with the allotment letter.

Investors will be given the choice of having their holding registered on the National Savings Stock Register, which pays interest gross, or on the Bank of England register, which pays net interest. The maximum holding on the National Savings Register was raised recently to pounds 25,000, and dealing through the Post Office is comparatively cheap but does not allow for the pin-point timing, and buying or selling at a known price that you get dealing through a stockbroker.

The Bank of England has distributed 300,000 copies of its explanatory booklet Investing in Gilts through Post Offices, and it is likely that they will have all been picked up within a couple of weeks.

Alan Page, the fixed-interest specialist at the stockbrokers Wise Speke, said: 'For the private individual there are superior investments with higher yields. This issue is nothing to get excited about.'

Other gilts have higher yields. He points to Treasury 8 per cent 2009 with a yield of 8.33 per cent and 8 per cent 2003 yielding 7.9 per cent. The market in gilts is highly liquid, so investors do not have to think in terms of holding the gilt until redemption - the winding-up date when pounds 100 is paid out for every pounds 100 of nominal stock held.

Mr Page is currently recommending PIBs - permanent interest-bearing shares issued by building societies - which yield more than 10 per cent.

John Hobson, director of the private-client department at Henry Cooke Lumsden, said: 'We would not recommend our clients to go in.'

Mike Thomas, the economist at Credit Suisse Asset Management, said: 'We are getting rather nervous about gilts at the moment because the economic date is getting stronger and stronger. The gilts market has drifted down over the past 10 days. We won't be advising our clients to take this up. Since last September we have been pushing portfolios more towards equities.'

For a copy of Investing In Gilts Freephone 0800 616 814.

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