A surge in UK government bond yields to multi-decade highs is luring retail investors into the market, with buying concentrated in short-dated gilts. Benchmark 10-year gilt yields have jumped to 5.4 per cent, the highest level since July 2007, while 30-year yields climbed above 6 per cent for the first time since 1998. This shift is driven by concerns that global inflation and borrowing pressures will keep interest rates higher for longer, making investors reluctant to take on longer-duration risk.
Higher- and additional-rate taxpayers are particularly drawn to shorter-dated bonds because capital gains from gilts are tax-free, while coupon payments are not. Bond prices fall when yields rise, pushing down the market price of shorter-dated bonds with historically low coupons to below par value, meaning most returns will be tax-free capital gains at maturity. Anna Macdonald of Hargreaves Lansdown reported a 38 per cent year-on-year rise in clients holding individual gilts.
Jason Hollands of Evelyn Partners noted strong interest in cash and cautious bond strategies. Despite the market volatility, experts recommend equities as the long-term hedge against inflation.
Source: Financial Times Markets · Summarized by HeadlinesBriefing