# Index Linked Gilts

Definitions:

Market Price - approximate, clean price (no accrued interest included).

Breakeven RPI Growth - the annual inflation rate required such that the return of the IL gilt matches that of the equivalent conventional gilt of similar maturity. This is calculated from the most recently published RPI Index Level. From this breakeven growth the Implied Redemption amount and Implied RPI at Maturity (defined below) can be calculated.

Base RPI - Reference RPI on the date the IL gilt was issued upon.

Index Ratio - Reference RPI (Settlement Date) / Base RPI

Net Price - includes accrued interest and Index Ratio.

Implied Redemption - the anticipated redemption value (as a percentage of par) if annual inflation continues at the Breakeven RPI Growth rate.

GRY (0% growth) - the Gross Redemption Yield of the IL gilt if the current RPI Index Level remains unchanged for the remainder of the IL gilt's index life - i.e. zero inflation. This uses the most recently published RPI Index Level. Notice that the GRY of a short-dated IL Gilt (e.g. TR24) finishes being index-linked 8-months before maturity (c. November 2023), so it is now beginning to behave more like a conventional gilt (all indexed values are either known or will be very shortly). Consequently it's GRY is beginning to look similar to the GRY of a conventional (fixed coupon) gilt.

Modified Duration - the change in Market Price for a 0.1% increase in GRY. Here the change is expressed as a percentage of the Market Price.

Theo. Values Using 0% and 4% RPI Growth - the theoretical market price of the IL gilt if inflation expectations change but all other functions remain the same (i.e. conventional gilt yields are unchanged).

Implied RPI at Maturity:

Abs.Level - absolute level of RPI at maturity implied by Breakeven RPI Growth (= Implied Redemption x Base RPI).

Year-on-Year - for IL gilts with a short period before maturity, it may be possible to calculate the implied RPI YoY at maturity. This is because the Index Ratio 12 months before the maturity Index Ratio is known.