Why are individual investors holding conventional government gilts?
Comments
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Bear in mind than the Government is effectively paying banks to borrow money which they are supposed to lend to house buyers and start up businesses, but are not doing. The banks would rather put the money into bonds because its safer. The return may be derisory, but when the banks can buy them with money borrowed from the Government at even lower rates...“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0
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My concern with owning gilts is not so much that the interest rate is so poor, it is that if/when interest rates rise this will surely be reflected by a swift and possibly very large drop in the price of gilts. And saying that "gilts are stable" probably wont make the fall any less swift when it comes.
So by owning gilts you not only get a poor return in interest today but will probably get a big capital loss too at some point.
Gilts were a good buy 4 or 5 years ago, just before everyone else started buying them. Today I think the only people/organisations buying them are doing so because they dont have much choice.
http://www.thisismoney.co.uk/money/pensions/article-2232391/Is-QE-bond-bubble-wreck-pension.html0
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