An index-linked gilt's clean price can be quoted with the inflation uplift inside it or with the uplift taken out, and the two figures differ by the index ratio — which is why the basis matters as much as the number.
A clean price has a basis as well as a value
A clean price is the price of the gilt itself, before the interest that has built up since the last coupon. For a conventional gilt that is the whole story: there is one clean price and it is quoted in pounds per £100 nominal. For an index-linked gilt there is a second question to settle first, because the gilt's nominal is itself uplifted by the index ratio. Is the price being quoted for the gilt as it stands, with that uplift included? Or is it being quoted for the gilt in issue-date money, with the uplift stripped back out?
Both conventions exist, and which one applies is decided by the gilt's indexation lag rather than by the preference of whoever is quoting. A gilt whose terms carry the three-month lag trades on a real clean price; a gilt whose terms carry the eight-month lag trades on a nominal clean price. Reading one as though it were the other is a consequential mistake on an index-linked gilt, because the gap between them is not a few basis points of price — it is a multiple.
Real clean: the price of the gilt itself
The real clean price takes the inflation uplift out. It says what the gilt's remaining cash flows are worth in the money the gilt was issued in, so a real clean price below 100 means the price paid is less than the real principal that will be repaid, and one above 100 means it is more. It is the price that pairs naturally with a real yield, because both are stated after the inflation the gilt is priced for.
Because the real basis ignores the uplift, it is the basis on which two index-linked gilts of different vintages can be compared at all. Two gilts issued decades apart can be set against each other on their real clean prices directly, because both are asking the same question about their own cash, without the accumulated inflation of different issue dates getting in the way.
Nominal clean: the price with the uplift left in
The nominal clean price keeps the uplift in. It is the price a holder would quote for the gilt as it now stands, with the accumulated inflation inside it, and it is what an eight-month-lag gilt trades on. It answers the question a buyer actually asks at the point of dealing — what does this £100 of nominal cost on the day of the trade, given that the nominal that will be repaid has grown? — and it is the basis on which the cash changes hands.
The nominal basis has one trap built into it. Because the uplift is inside the clean price, the difference between a nominal clean price and a nominal dirty price is not the accrued interest in real terms: the uplift sits on both sides of the subtraction and does not cancel. Recovering the real accrued interest means deflating the uplifted dirty price first and then subtracting a real clean price. On a three-month-lag gilt the published index ratio does the same job directly, which is one reason the two vintages cannot be handled with one formula.
Converting between them, with the inputs stated
The conversion is a single multiplication, and it runs in either direction. Divide a nominal clean price by the index ratio and the result is the real clean price; multiply a real clean price by the index ratio and the result is the nominal one. The figures below are illustrative rather than a quote from any gilt: the inputs are a real clean price of 62.400, real accrued interest of 0.250 and an index ratio of 1.45000, per £100 nominal.
| Measure | On the real basis | Conversion | On the nominal basis |
| Clean price | 62.400 | × 1.45000 | 90.480 |
| Accrued interest | 0.250 | × 1.45000 | 0.3625 |
| Dirty price | 62.650 | × 1.45000 | 90.8425 |
Every line converts by the same factor, which is the point: the index ratio is a scale, not an adjustment, and it applies to the whole price rather than to the principal alone. Whether a quote is described as real or nominal therefore changes nothing about the gilt; it changes the units the number is written in. What it does change is what the number can be compared with.
The yield that matches each basis
A price on a real basis pairs with a real yield: the return after the inflation the gilt is priced for, rather than the cash return. GiltIQ states the real yield for an index-linked gilt as an annually-compounded gross redemption yield, on a price with the uplift deflated out, so the yield and the price are always on the same footing whichever vintage the gilt belongs to.
A reader who wants the cash-return equivalent does not need a second published yield. The two inputs sit side by side on the index-linked list: the real yield, and the implied RPI at that gilt's term. Combining them — one plus the real yield, multiplied by one plus the implied RPI, less one — gives the nominal-return equivalent that the pair implies. That combination is arithmetic a reader performs on two published figures, not a fifth column the site prints, and it inherits every caveat of its inputs: the implied RPI comes from a fitted curve, so the result is an estimate rather than a quoted yield.
A net real yield takes the same real figure and deducts income tax on the coupons at the band the list's tax control is set to. It is useful for the reason tax always is: a low real coupon and a high real coupon at similar real yields do not stay similar once the coupons are taxed, and the difference between two gilts can be a tax difference rather than a market one.
A real clean price pairs with a real yield; a nominal clean price pairs with a cash yield. Mixing the price basis and the yield basis produces a figure that is not wrong by a rounding — it is wrong by the index ratio.
Where to see each
The index-linked gilts in issue settles the basis for the reader. Every row carries a clean price, an accrued figure with its day count, the index ratio at five decimals, the dirty price, the real yield and the net real yield, all on one line — so the uplift and the deflated price are visible in the same place rather than in two conventions a reader has to reconcile. An eight-month-lag gilt's quoted clean appears deflated there, which is what makes its real yield comparable with a three-month-lag gilt's.
The par RPI curve is where the implied RPI behind a nominal-return equivalent is plotted, one point per priced index-linked gilt at its own term. Since the conversion between the two bases is the index ratio and the conversion between the two yields is that same implied figure seen from another angle, the curve is the page that shows what the market is charging for the difference.
Two habits keep a comparison honest. Check the index ratio before comparing a clean price with another gilt's, because a price that looks expensive on one basis can be ordinary on the other. And keep the price basis and the yield basis together: a real price with a real yield, or a nominal price with a cash yield, and never one of each.
Background, not advice
This article explains the two bases an index-linked gilt's clean price can be quoted on and the yield that pairs with each; it is general background, not investment, tax or legal advice for any reader's circumstances. The index ratio and the quotation conventions come from the Debt Management Office, the Retail Prices Index from the Office for National Statistics, and every figure in the worked table is illustrative with its inputs stated. Neither basis removes risk: an index-linked gilt's cash can fall with the index, its price moves before maturity, and a real yield can be negative.