A surge in UK government bond yields to multi-decade highs is luring retail investors, with buying heavily 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. Hargreaves Lansdown reported a 38 per cent year-on-year rise in clients holding individual gilts.
Higher- and additional-rate taxpayers are drawn to shorter-dated bonds because capital gains from gilts are tax-free, unlike coupon payments. Rising yields have pushed down the market price of shorter-dated bonds issued with historically low coupons to below par value, meaning the majority of the return will be in the form of tax-free capital gain when redeemed at par. This attraction has increased due to speculation that Capital Gains Tax rates could be raised in the upcoming Budget.
Evelyn Partners and Bestinvest have also reported strong interest in short-dated gilts and related ETFs, such as the iShares UK Gilts 0-5yr UCITS ETF.
Source: Financial Times Markets · Summarized by HeadlinesBriefing