Given the pandemonium around the gilts market after the Mini-Budget in September, it would seem that investors would naturally shy away from Government bonds. But as the dust settles and rates recover is there an opportunity for investors?
Government bonds or gilts are akin to an IOU that the Government issues when it needs to raise money. The bond is issued with a related percentage of interest, which is paid back on top of the original sum.
The percentage paid is known as the ‘coupon’ value of the bond. The ‘yield’ is the rate of return it generates.
Most gilts pay a fixed coupon and are repaid or ‘mature’ at a set date. This can vary from months to decades.
Interest rates and the related fallout from the Mini-Budget, made these yields fall. Since then, gilt yields have risen, reigniting interest in them as a more attractive investment.
Whilst not offering massive returns, gilts can offer an attractive option for those looking for a safe place to park their money, whilst gaining some form of stable return.
The advantage over fixed-rate bonds issued by building societies and banks is that the investors’ money is not tied up for a rigid amount of time and is accessible via the sale of the bonds.
On the downside, the yields are open to the fluctuations of interest rates. If you are considering looking at gilts as an investment option, get in touch with our wealth management team.