From MoneyWeek · · 1m
Should you buy government bonds?
UK investors are buying more government bonds as yields rise, but risks remain.
In brief
UK investors are buying more government bonds as yields rise, but risks remain. UK investors are increasing gilt holdings amid rising yields but face inflation and interest rate risks. Originally reported by MoneyWeek.
UK investors boost gilt holdings
Hargreaves Lansdown reports a 38% year-on-year rise in users holding individual gilts.
30-year gilt yields 5.94%
The 30-year gilt now yields 5.94%, the highest in recent years.
Capital gains drive returns
A chunk of the 6% return comes as capital gains when the bond redeems at par value.
Inflation risks remain
Higher interest rates and inflation threaten the real value of fixed income returns.
Index-linked gilts less effective
Linkers got crushed in 2022 as interest rate hikes outweighed inflation protection.
Tax strategy benefits short-dated gilts
Short-dated gilts trading at discount offer mostly tax-free yields for higher-rate taxpayers.
Stocks may offer better value
The FTSE 100's 7.4% earnings yield outstrips gilts, but stocks carry inflation protection.
The bottom line
UK investors are increasing gilt holdings amid rising yields but face inflation and interest rate risks.
