Nominal amount: this is the face value of a gilt. It represents the amount that will be repaid to the holder at maturity, and is also used to calculate the dividend payment.
Price of a gilt: this is the current market price at which the gilt can be bought or sold. It can differ from the nominal amount and is influenced by factors such as interest rates, inflation expectations, and demand for gilts.
For example, a gilt with a nominal value of £100 might trade at £95 if market interest rates have risen or at £105 if market interest rates have fallen. Learn more about what impacts the market price of gilts here.
It’s also important to understand clean vs dirty pricing when it comes to gilts.
The price quoted on Freetrade’s instrument screens is what’s known as the clean price. It reflects just the bond’s market value.
However, when you’re buying a gilt, you also have to compensate the seller for any interest that has accrued on the gilt since their last dividend payment.
So what you actually end up paying is what's known as the dirty price, which is essentially the clean price + any interest accrued since the last dividend date. You’ll see a breakdown of the estimated dirty price, including interest accrued, on the Confirm buy screen.
Interest on gilts accrues on a daily basis between one dividend date and the next.
For example:
Assume 1% Treasury Gilt 2032 pays interest on 31 January and 31 July each year, and is currently trading at a price of £0.80 per £1 nominal
If you wish to purchase the equivalent of £100 nominal, the clean price will be £80 (£0.80 x £100)
If the trade settles on 31 August, you need to compensate the seller for 31 days accrued interest, which is the number of days since the last dividend date.
This amount is calculated as follows:
(1% annual dividend/2 semi-annual payments) x (31 days since the last dividend/184) = £0.084239 per £100 nominal of the gilt
Here, 184 is the number of calendar days between 31 July and the next dividend date, 31 January.
So, while the clean price of your purchase is £80, you would actually pay £80.08 (£80 clean price + £0.08 accrued dividend), which is known as the dirty price.