Gilts get their moment in the limelight

tracts much less attention than the share markets. This is partly because over 60% of gilts are owned by the Bank of England, insurance companies and pension funds, all of which tend to be long term holders. The Bank of England features prominently because until recently it had been the largest buyer of gilts under its quantitative easing (QE) programme, which it is now beginning slowly to unwind.

But in late September gilts hit the headlines, when the market became spooked by the level of fresh borrowing implied by the former Chancellor Kwasi Kwarteng’s mini-Budget. The concerns prompted gilt prices to fall and thus gilt interest yields to rise and the selling snowballed. Suddenly there were many sellers of gilts but no buyers, a situation which forced the Bank of England to intervene and start buying gilts once again. The Bank’s actions, combined with the reversal of several contentious aspects of the mini-Budget, eventually stabilised the market. However, gilt yields settled at higher levels than had been seen for over a decade.

The bad news is that government borrowing now costs more, which could lead to higher taxes (or yet more borrowing…). The good news is that higher gilt yields mean improved annuity rates and make investment in gilts and other fixed interest bond funds potentially more attractive for income seekers. 

The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.