UK retail investors snapped up gilts this week, taking advantage of higher potential returns following the bond market sell-off, according to online trading platforms.

US 30-year Treasury yields hit near two-decade highs of 5.30 per cent at the start of the week, while UK long-term borrowing costs rose to 5.83 per cent, as worries about deficits, record levels of Big Tech debt issuance to fund data centres and geopolitical tensions unsettled the market.

The surge in yields prompted many UK investors to swoop for tax-efficient, low-coupon gilts, since tax is only paid on the income, or coupon, not on any capital gain when the bond is sold or redeemed at maturity.

Higher yields are clearly attracting our clients' attention, with gilt purchases up 34 per cent on the previous 30 days," said Hal Cook, senior investment analyst at Hargreaves Lansdown, who noted that most clients were buying low-coupon bonds. Jason Hollands, managing director of wealth manager Evelyn Partners, said it "shows the attractiveness and tax efficiency of gilts currently". But he warned that DIY investors need to be cautious about buying the "wrong bond" — one with a higher coupon but ultimately, when tax is taken into consideration, a lower return. An example of a low-coupon government bond popular with investors includes TN28, a gilt that matures on January 31 2028. It only pays a 0.125 per cent fixed interest coupon, but it can be bought at 94 per cent of par or face value, which equals a 4.1 per cent yield to maturity, according to Hollands. For a 45 per cent taxpayer, it has a 4.043 per cent post-tax yield, which would be equivalent to a cash savings account paying a fixed rate of 7.351 per cent pre-tax. On IG Group's platform, investors showed interest in short-dated UK gilt ET Fs. "These are seeing a sharp increase in activity . . . The surge suggests investors are looking for a relatively defensive way to capture income," said Axel Rudolph, its chief technical analyst. Average daily trades in UK gilt ET Fs were 76 per cent higher between Monday and Wednesday compared with the previous full week on IG's platform. Interest in US Treasury futures rebounded strongly too, with average daily trades 101 per cent higher, the group said. However, not all investors saw the rise in bond yields as a buying opportunity. Some were "spooked" by the jump, according to Dan Coatsworth, head of markets at investment platform AJ Bell. "A UK government bond index fund experienced some of the biggest net outflows in the first three days of the week on AJ Bell's platform," he said. Investments with the biggest net outflows on the platform also included three US equity funds and a global technology fund. But IG said retail investors were not rotating wholesale from equities into bonds. Average daily trades on the FTSE 100 jumped 39 per cent between Monday and Wednesday compared with the previous full week, while they rose 55 per cent on the S&P 500. "We are still seeing equities at near-record highs, despite the bond sell-off, helped by some strong earnings and hopes that AI will boost productivity," said John Stopford, head of multi-asset income at Ninety One, an investment manager.