Interactive Investor

Bond Watch: the most-popular gilts and their yields right now

Sam Benstead breaks down the latest news affecting bond investors.

15th March 2024 09:22

Sam Benstead from interactive investor

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.        

Gilts galore!

Interest rate rises have increased demand for gilts, as yields are now far higher than before the pandemic and many also now actually return more than inflation, currently running at 4% on the Consumer Prices Index measure.  

Below are the most-held gilts on the ii platform, ranked by the number of customers holding them. The yield figure – from data provider Refinitiv which is part of the London Stock Exchange Group – is the “yield to maturity”, a measure of the total return for investors buying the gilt at today’s market prices and holding the bond until it matures.

Source: Refinitiv, 14 March 2024, most-held gilts as of 29 February 2024 on interactive investor. 

The most-popular direct bonds among ii customers are gilts maturing within the next four years, most likely because investors are holding the bonds until maturity to pick up a fixed return from the UK government. 

Bonds maturing in the next four years generally yield more than 4%, which could be viewed as an attractive level of income given that inflation is expected to fall below that level this year.

Capital gains on gilts are free from tax, meaning that bonds trading at a discount to their par value will deliver a tax-free gain when they mature at par.

For example, the most-popular gilt TN25 costs around £96 and will repay investors £100 on maturity at the end of January 2025, alongside any coupon payments (which are subject to income tax if held outside an ISA or SIPP). This is also the case for T26, trading at £92.75.

Not all gilts are trading at a discount. TR25 trades close to par, meaning that the bond’s coupons make up the bulk of the return. The same is true for 6% Treasury Stock 2028 (LSE:TR28).

US inflation comes in hot

Inflation in the US rose to 3.2% on an annualised basis in February (up from 3.1% in January).

This was ahead of economists’ forecasts, which predicted that it would be unchanged. Service inflation was the biggest cause of the surprise, with motor insurance and health key rising costs.

This caused investors to push back their expected date for the first interest rate cut in the US, which sent bond yields slightly higher, as well as the US dollar.

Preston Caldwell, chief US economist at data group Morningstar, said: “This report should worry inflation optimists more than last month's report. Although shelter inflation dropped in February compared to January, inflation increased in core goods and other services.

“A rate cut at the 1 May meeting is now unlikely, with only one more CPI report due before then. But we still expect the data to be sufficient to allow the Federal Reserve to start cutting with the June meeting.”

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Related Categories

    Income Investor
    Tax
    Bonds and gilts