Bankers in London are piling into the country’s government bonds in their own accounts after a selloff. And they have a favorite: the January 2028 gilt.
Data from Barclays Plc show it was the most-bought gilt among retail investors in August. That enthusiasm is also evident at the UK’s largest retail investment platform Hargreaves Lansdown, which ranks it as the most popular and says buying of gilts overall has jumped around 50% in the last two weeks.
The 2028 gilt offers an unusually neat mix: tax is only paid on its low 0.125% coupon, with much of the return coming free from capital gains as it moves toward par at maturity, while the short tenor limits exposure to geopolitics. That combination is creating a buzz on trading floors, where people Bloomberg News spoke to are looking to capitalize on current bond market volatility.
“It trades rich compared to peers, suggesting demand for it, likely due to its low coupon nature,” said Marcus Jennings, a strategist at Wells Fargo. “Returns are skewed towards capital gains for low coupon gilts.”
Such low coupon gilts have become popular with wealthy Britons in recent years because they can offer higher effective returns than savings accounts, given a tax quirk where gilts are exempt from capital gains. Data compiled by Bloomberg suggests that trend has accelerated in recent months, particularly for the 2028 bond. It now trades at a 68 basis-point premium to its closest peers.
“It’s just an alternative to putting cash in a high-rate bank account. There’s the decent rise in the short-dated gilt yields, along with most bonds, and the 2028 is the next maturity with the low coupon that benefits from the income tax treatment,” said Jason Borbora-Sheen, a portfolio manager at Ninety One.
Growing bets that the Bank of England will raise interest rates this year have pushed short-dated yields higher this month. For investors willing to step in after the selloff, that means the chance to lock in fatter returns without tying up money for decades.
And with a previous low coupon bond having matured in January and another set to do so next month, investors are likely to be rolling over much of the redeemed cash.
“The 31 January 2028 one remains one of the more popular though and we expect this to continue. It’s quite possible that investors who own the 22 October 2026 gilt could reinvest their maturity lump sums when they arrive into that gilt too,” said Hal Cook, senior investment analyst at Hargreaves Lansdown.
That doesn’t mean the trade is without risk, given the price of any bond can fluctuate.
Investors have painful memories of what happened when they reached too far out along the curve. A 2061 bond used to be the most popular on personal accounts given a low coupon and a historic discount to par, but it’s failed to pick up for years.
Long-dated gilts have been under pressure on concerns about the UK’s fiscal stability and waning demand from pension funds. This time, the City is keeping things shorter, while the ailing 2061s — now trading at just 23 pence — sit in investment portfolios gathering cobwebs.
With assistance from James Hirai.
This article was generated from an automated news agency feed without modifications to text.
