Post-call pricing of PIBS

Does anyone know what happens to the price of PIBS when a call is passed and the terms are reset ? I have some Principality and some Nationwide PIBS that have calls in 2020 and 2021 respectively. The `re-set' terms are in both cases based on the gross yield to redemption of 5-year gilts with a significant premium (3% and 3.88% respectively. So I am not that concerned about loss of income if the call is passed. But in those circumstances will not the price of the PIBS be wholly dependent on the expected income stream, as there is no redemption and no further call date ? Am I not likely to be looking at a substantial capital loss as the price will no longer be supported by the securities' face value ? I seem to recall that Principality have passed the call before. Perhaps what happened then would provide an indication of the likely effect in future ?


  • 5 year gilts have a yield to redemption of 0.3% so I guess that is the starting point for your analysis. On that basis you will have a bond paying 3 or 4 % with no maturity which means it will be very sensitive to future inflation and interest rate expectations and changes. If it looks like interest rates will rise significantly in the future you could see a large capital loss. I am not aware of what happened with the Principality bonds and whether they reset to a similar level, but if I was you I would have a close look at them
  • But don't forget that the Principality issue does re-set every 5 years - so, in a way, you could look at this becoming an inflation linked issue of sorts (assuming Gilt rates rise to curb inflation or fears of inlation).

    Not a recommendation to load up on these. I do hold some but 2020 still seems some way off to me.
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