Private investors in the UK have seen the value of their gilt holdings fall by an estimated £2.8billion, down from the £7.2billion they held in gilts when prices started to fall at the start of Q3 2020*, shows research by Bowmore Asset Management.
Over the same period UK pension funds and insurance companies have seen an estimated £267.7billion wiped off the capital value of the £704.5billion they held in gilts.
Gilt prices have fallen by an average of approximately 38%** since they peaked at the end of Q2 2020. Including income investors are down by approximately 28% over the same period.***
Prices for gilts have taken another tumble this year partly because of inflation caused by the USA’s war with Iran, scepticism about the ability of the UK Government to keep spending under control may also have been a contributing factor.
A sharp collapse in global bond prices was precipitated by Russia’s invasion of Ukraine, which led to a sustained rise in inflation as energy prices soared. The weakness in gilt prices has also been exacerbated by the explosion in public spending during COVID and a weak UK economy.
Comments Jonathan Webster-Smith, Chief Investment Officer of Bowmore Asset Management: “Over the last few years we’ve been cautious over gilts as we couldn’t see signs that the UK Government would be able to significantly cut spending.”
“There have been several false dawns where it was hoped that inflation had been tamed and that interest rates could start heading down. Unfortunately, geopolitics has continued to cause major issues.”
“There has also been concerns over the ability of the major bond issuing countries, like the US, Japan, the UK and France, to make a significant dent in their debt. That has meant a continued supply of new government bonds that the market has to absorb and to worry about.”
Jonathan also explains that in the UK, higher bond yields have increased the Government’s cost of servicing its debt, putting its ability to close the deficit even further out of reach.
Adds Jonathan: “Given the fall in prices of UK debt, we have recently brought some low coupon gilts maturing early in 2028 and 2029. They are offering yields of over 4% and the short-dated nature means that they will benefit from the pull to maturity. If held to maturity, the gilts are scheduled to redeem at par, although their market value may fluctuate before maturity. In that situation gains on qualifying gilts are generally exempt from Capital Gains Tax”
“For short dated gilts, that you intend to hold to maturity, there is the reassurance that the UK government has never defaulted on its bonds****.”
“Whilst the news has been full of stories that gilts are at prices not seen in 20 years we remain of the view that gilts over 15 years in duration do not offer a strong enough risk return for us to buy them at this stage. We do see some value in the 5-10 year space given our medium-term view is that bank rates and yields will fall. There is always the chance that the government might temporarily reduce sales of gilts which will limit supply, bringing down yields without rate changes from the Bank of England.”
*As of September 1 2026. Based on UK Debt Management Office data.
**Based on performance of State Street SPDR Bloomberg UK Gilt UCITS, which tracks the Barclays Gilt Index
***Based on Bloomberg Sterling Gilts Total Return Index
**** UK Debt Management Office
