Bond Watch: new gilt offers over 5% income
Sam Benstead breaks down the latest news affecting bond investors.
16th May 2025 10:47
by 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.
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Long gilt offers high returns
interactive investor customers can participate in a new gilt offer from the government which is set to pay a 5.375% annual coupon.
This means per £100 gilt, £5.375 is returned annually in coupon payments, split across two payments (on 31 January and 31 July). On maturity in 30 years’ time, £100 is also returned per gilt purchased.
The gilt is a “long” bond, maturing in 2056. Bonds maturing further out into the future currently pay significantly more than bonds maturing soon, as investors are demanding greater compensation for inflation and interest rate risk.
In contrast, gilts maturing in the next couple of years yield around 4%. Those maturing in 10 years yield about 4.7%.
Longer-dated bonds carry extra risk over those that are maturing soon. This is because of their “duration” - which is a measure of their sensitivity to changes in interest rates.
So if interest rates fall, this gilt could see large uplifts to its value, but if rates rise, then it could fall a lot in value.
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In 2022, when interest rates rose, it was the longest bonds that saw their value fall the most.
However, now that central banks are cutting interest rates and inflation is returning to the 2% targets, the risk to bond prices is lower.
Customers can participate in the gilt auction here. The minimum investment is £1,000, followed by £100 multiples thereafter.
The offer closes on Monday 19 May at 2.30pm and the gilt will begin trading on Wednesday 21 May.
The most-popular gilts with customers are shorter-term gilts, maturing in the next couple of years. Investors are generally holding these to maturity to lock in a fixed return.
The five most-popular gilts are maturing in 2026, 2028, 2025 and 2031. All have low coupons as they were issued during periods of low interest rates. Of the top 10, by assets invested, just two mature on the “long” end, in 2050 and 2061.
Most-popular gilts
Gilt | Ticker | Yield to maturity (%) | Coupon (%) | Maturity date | Price (£) |
T26 | 3.3 | 0.125 | Jan-26 | 97.8 | |
TN28 | 3.7 | 0.125 | Jan-28 | 90.8 | |
T26A | 3.7 | 0.375 | Oct-26 | 95.4 | |
TG25 | 4.1 | 0.625 | Jun-26 | 99.8 | |
TG31 | 4.1 | 0.25 | Jul-31 | 79 | |
TG61 | 4.8 | 0.5 | Oct-61 | 25.9 | |
TY25 | 4.2 | 3.5 | Oct-25 | 99.8 | |
TG35 | 4.6 | 0.625 | Jul-35 | 67.4 | |
TG50 | 5.1 | 0.625 | Oct-50 | 35.9 | |
TG29 | 3.9 | 0.5 | Jan-29 | 88.4 |
Source: interactive investor/Tradeweb on 14 May 2025
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.
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