Bond Watch: ii unlocks access to UK Treasury Bills
Sam Benstead breaks down the latest news affecting bond investors.
26th July 2024 10:50
by Sam Benstead from interactive investor
Share on
Welcome to interactive investor’s ‘Bond Watch’ series, covering the latest market and economic news – as well as analysis – that is relevant to bond investors.
Our goal is to make the notoriously complicated world of bond investing simpler, by analysing the week’s most important news and distilling it into a short, useful and accessible article for DIY investors.
- Invest with ii: How Bonds & Gilts work | What is a Managed ISA? | Buy Bonds
Another way to generate a safe return
Issued by the UK’s Debt Management Office, UK Treasury Bills (T-Bills) give investors a fixed return, backed by the UK government.
They are “zero coupon” discount notes, with the investment returns created at the point the T-Bill matures, rather than via any coupon payments, unlike gilts. The investment return comes solely from the difference between the price the government sells to investors at (less than £100) and the redemption price the government pays back (£100).
Annualised yields currently hover just above 5%, therefore delivering an inflation-beating return.
UK Treasury Bills are not new, in fact they have been around since 1877, you just might not have heard of them as they were previously the preserve of large investors.
- ii unlocks investor access to the UK Treasury Bill Market
- Nick Train investment trust looks to address discount
- Sign up to our free newsletter for share, fund and trust ideas, and the latest news and analysis
But partnering with stockbroker PrimaryBid, ii customers are now able to participate in selected UK T-Bill tenders.
One key advantage of T-Bills is their short-term maturity and frequency of issuance, versus gilts which have a longer-term investment profile and fewer offerings. T-Bills typically mature in one, three, and six-month periods.
Read our guide on everything you need to know about UK Treasury Bills and how they differ from gilts.
Will the Bank of England cut rates next week?
On Thursday 1 August, the Bank of England could deliver its first rate cut since early 2020 when the pandemic shut down economies.
The inflation rate for June was 2%, the same figure as in May, which is bang on the Bank of England’s target.
This means that traders are betting that the central bank could deliver a 0.25 percentage point cut to interest rates, taking them down to 5%.
However, the most likely outcome is no change in interest rates, at a 65% probability, according to recent data from the London Stock Exchange Group.
Investors withdraw money from bond funds
In June, investors took nearly £2 billion out of UK-domiciled fixed-income funds, according to fund data group Morningstar. This takes total net outflows for 2024 to £5.8 billion.
This comes despite positive returns this year for bond funds, with the typical sterling corporate bond fund returning 1.3%, sterling strategic bond fund returning 2.3%, and sterling high-yield fund returning 4.4%.
Morningstar also found that active versus passive flows divergence goes on, with passive funds recording net inflows for June, while active strategies saw further redemptions.
Two fund sectors attracting cash this year are global large-cap shares and US shares. In contrast, funds investing in the UK are suffering heavy redemptions.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.