Bond Watch: key gilt matures next week – what to do next

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 | Tax Rules for Bonds & Gilts | Open a SIPP

TG24 matures 

A popular gilt matures next week, on Monday 22 April, returning £100 per gilt to investors. 

The TG24 gilt was issued in July 2018 with a £1 coupon, yielding around 1% to investors at issue. The value of the bond crashed during 2021 and 2022, sending the yield to around 5% at its peak for new investors.  

The high yield, together with the attractive tax status of gilts (no capital gains tax to pay), meant it attracted a lot of cash from ii customers.  

• Everything you need to know about investing in gilts
• The investment outselling US tech and Fundsmith Equity

For investors about to receive a lump sum back from the government who want to reinvest into short-term gilts, there are lots of options to choose from. 

One of the most popular is TN25, which matures at the end of January 2025. Refinitiv data shows its yield to maturity as 4.7% on an annualised basis. The bonds cost £96.50 to buy, so most of that gain comes from capital gains when the bond matures at £100, which is appealing from a tax perspective for investors who own it outside an ISA or SIPP.  

Another popular option is T26, yielding 4.4% and maturing on 30 January 2026. Costing £92.75, like TN25, most of the return comes from the £100 principal on maturity. It pays a 12.5p coupon per £100 bond.  

UK inflation falls less than expected 

The Consumer Price Index (CPI) rose 3.2% in the 12 months to March, less than the 3.4% increase in February. 

However, economists had expected a CPI print of 3.1%. The result was that investors dialled back expectations for interest rate cuts this year to just one, coming in September or November.  

Accommodation, communication prices (mobile phone applications) and tobacco were among the biggest contributors to higher inflation. 

Inflation in the UK is now lower than in the US and at its lowest level since 2021. 

• Why fund managers have turned even more bullish
• Three steps for investors as inflation cools to 3.2%

Deutsche Bank expects UK inflation to be 2.2% next month. It said: “Where to next? Today’s data should confirm that CPI is on its way to  around 2% year-over-year in April – but we now think the path to the Bank of England’s target will be a slim one, given rising energy prices and a slew of index-linked costs coming into effect.  

“We’ve lifted our headline CPI projections for April from 2% to 2.2%, on the back of both rising oil prices and a slight adjustment upward in the services administered/index-linked basket.” 

However, it expects inflation to bounce back slightly in the second half of the year to run at between 2% and 2.5%.