Jannah Theme License is not validated, Go to the theme options page to validate the license, You need a single license for each domain name.

Retail investors snap up gilts as yields surge ahead of UK savings rates

Receive free Gilts updates

Retail investors have rushed to snap up UK government debt this year as yields have shot up and many bank deposit rates have failed to keep up. 

The dash to buy gilts comes as the Bank of England has embarked on its most aggressive rate raising for a generation, surprising the market by lifting its base rate to 5 per cent this week, its highest level since 2008, while short-dated bond yields have risen even higher as markets price in several more rate rises.

Winterflood Securities, a government-appointed dealer for UK debt which ensures there is a continuous supply of gilts available for private investors and wealth managers, said its retail trading volumes rose seven-fold last month compared with May the previous year.

“There are very few banks offering gilt rates” said Peter Clark, group chief executive of wealth manager Bentley Reid. “Locking in 5 per cent and a bit on two-year paper, that’s an attractive yield and it’s the first time you’ve been able to do that in 15 years,” he said. 

Hargreaves Lansdown, the UK’s largest do-it-yourself investment platform, said June was likely to bring a monthly record value of gilts sales, accelerating what was a 15-fold rise over 12 months to the end of May compared with the previous year. This is in spite of a broader sell-off in gilts which has pushed yields higher. 

Yields on one-year gilts, which move in line with interest rate expectations, were 5.3 per cent on Friday. That compares with 4.54 per cent for the average one-year fixed term from UK bank accounts, according to data provider Moneyfacts.

Returns on National Savings & Investments, the state backed savings provider, are even worse, with returns of 4 per cent on a one-year fixed bond.

Stacey Parsons, head of fixed income at Winterflood, said gilts now offer “significant opportunities” for investor portfolios, and that the brokerage had seen a “trending move” away from trading in fixed income exchange traded funds towards direct investment in UK gilts.

Retail investors ignored gilts for most of the past decade as paltry returns left no incentive to own them. Parsons said the level of demand for gilts “caught many by surprise” but “that looks set to change going forward, as investors move to take a seat at the fixed income table”.

The popularity of gilts is enhanced by the way the gains on some are taxed.

Data from interactive investor, the UK’s second-largest retail investment platform, shows that the majority of interest in gilts has been for bonds which are close to maturity, with its two most popular maturing in January 2024 and January 2025, as investors look to lock in fixed rates as an alternative to cash.

These bonds offer relatively low interest payments, known as coupons. But the bulk of the return they deliver comes in the form of a low price compared to their face value, handing holders a capital gain when they mature.

Sam Benstead, deputy collectives editor as interactive investor, said there was a big pool of investors that will benefit from the lack of capital gains tax below par. “If you look at our top ten [gilts sold], only one bond matures in more than seven years. The most popular are the short dated bonds because investors want to lock in the higher rate,” he said.

Read the full article here

Leave a Reply

Your email address will not be published. Required fields are marked *