Gilts
BURDEN OF GILTS
Should investors snap up gilts while yields on 10-year notes are at 3.6 %, or is there more pain to come for the sector ? Adam Lewis finds out
In volatile markets , government bonds are supposed to be the safest place to put your money . However , in an environment in which inflation in the UK has hit 10.1 % and interest rates have jumped to 3 %, these assets have proved to be anything but safe . Data from FE Analytics shows the average IA UK Gilts fund is down 22.3 % year-to-date , while the IA UK Index Linked Gilts sector has fared even worse , falling 33.7 %. Such falls have left many investors questioning the wisdom of the old 60 / 40 equity / bond approach to diversification , leading them to look at alternative assets for portfolio protection .
But with a potential peak in the interest rate cycle approaching , is now the time to be buying gilts rather than selling them ?
Out of credit Andrew Lake , head of fixed income at Mirabaud , says the UK is facing a double-pronged issue in that it has lost both its political and central bank credibility . As a result , he says buying long gilts is not an appealing trade . “ The UK is in a unique situation ,” he says . “ The [ Truss ] government made a hash of the mini-Budget , making a number of unfunded changes that were not pressing , but which caused systematic risk in the financial system , due to over-levered pension funds .” Lake argues this is a good example
Issue 89 - November 2022 / 55 /