Anyone buying gilts right now?

Alexland

Without wanting to get political so keeping the conversation general about their future prospects rather than any particular party is anyone else seeing medium to long duration gilts as a potential opportunity for overweighting within a portfolio now yields are at 27 year highs?

I saw an article that highlighted that a 30 year gilt held to maturity would provide a return of almost 400% assuming no default and trusting their maths. But then it also highlighted how close we are to the price getting into a doom loop again so I guess the government will need to do something (perhaps austerity measures, as much as they might not want to) to shore up the prices soon so this opportunity might not last long.

https://portfolio-adviser.com/30-year-gilt-yields-hit-27-year-high/

Hoenir

Yes also. Have been for a while. Progressively been switching from short dated to longer dated. 

In simple terms. We are witnessing the unwinding of the QE era. Central Banks are well underway with running down their balance sheets. Interest rates are normalising. No more cheap money to propel asset prices skywards. 

Balanced portfolio's to dampen volatility would appear to be destined to be in vogue again. 

PS. 1998 is an interesting date. Around the time that Northern Rock and Bradford and Bingley commenced the US concept of securitising mortgage debt to grow their mortgage lending capacity. Always going to be a phase 2 post GFC. 

InvesterJones

Yes I did also. But only at durations I was happy to hold to maturity and therefore satisfied with the yield (and can ignore the 'oh but I could have got an extra 0.3% if I buy some more later').

Alexland

JamesRobinson48 said:

I'm only hesitating because I'm unsure when is the best time to dive in, or how much to allocate to conventional gilts vs linkers.

I can't comment on linkers as I find the possibilities with them too hard to hold in my brain for more than a few minutes but for standard gilts surely the risk of another doom loop with insurers and pension schemes is so great right now it must create a bottom in the price at around this level where the government will need to take action to support the price? So unless they go a lot lower quickly they can't really go much lower if that makes sense?

Hoenir said:

Have been for a while. Progressively been switching from short dated to longer dated. 

Me too. I spent years being annoyed that I couldn't justify holding any bonds because they were crazy expensive. When bonds became attractive again in recent years I started getting back in with short dated corporates but now the yield premium on corporate bonds no longer looks worth it so I would rather take my risk with medium duration on 'safe'(?) govt bonds which usually give a better yin/yang inverse corelation with equites.

InvesterJones said:

I was happy to hold to maturity and therefore satisfied with the yield (and can ignore the 'oh but I could have got an extra 0.3% if I buy some more later').

There's always the buyers regret when the price keeps going down. We just have to accept we are unlikely to time the bottom of the market with perfection unless we get very lucky. I've seen my recently acquired gilts drop circa 5% this month but nevermind they will just compound better. As my equities have done so well my pensions contributions are now going 100% into gilts.

As I intend to use my pension TFLS to clear my mortgage balance maybe I should allocate exactly enough in directly held gilts to mature at £268,275 on my pension access age (accepting this isn't really possible as I wouldn't know the yield that I would be reinvesting income) then I could plan my mortgage repayments to exactly leave that balance remaining at pension access age.

Hoenir

As Gilt yields rise. Then correspondingly annuities will again become attractive options for many retirees. With the significant sums involved could tip the scales. Resulting in a net sell off of other asset classes. Likewise stabilising the Gilts market.  

OBR forecast the median mortgage interest rate to be around 4.75% in 2027. Suggests there's a rollercoaster to be ridden for a while. 

cloud_dog

Hoenir said:

OBR forecast the median mortgage interest rate to be around 4.75% in 2027. Suggests there's a rollercoaster to be ridden for a while. 

From that could we deduce/assume that average savings rates could be around the 3% (+/-) range in a similar timeframe? (Obviously no one knows the future)

Alexland

Hoenir said:

As Gilt yields rise. Then correspondingly annuities will again become attractive options for many retirees. With the significant sums involved could tip the scales. Resulting in a net sell off of other asset classes. Likewise stabilising the Gilts market.  

Yes annuities being unattractive was another thing that used to annoy me which seems to be sorting itself out. I had always expected that 100% of my pension income when I get to retirement would be via drawdown but now I am thinking a mix of both might finally make financial sense. It's so nice we have bonds back in play again to offset the equities risk. It makes me happy even if they are still going down in valuation.

Hoenir said:

OBR forecast the median mortgage interest rate to be around 4.75% in 2027. Suggests there's a rollercoaster to be ridden for a while. 

To enable my divorce buyout I had to take out a 5 year year fix at 4.3% last year which at the time seemed expensive as everyone was talking about when rates might reduce. Sadly I missed a brief opportunity to get 4% because the mortgage advisor I was already dealing with was on holiday for a week I kick myself for not asking to speak to another advisor. There was only one lender I found willing to lend me enough money on the terms I wanted and I only found them by working my way down the full membership list of the Building Society Association.

Alexland

cloud_dog said:

From that could we deduce/assume that average savings rates could be around the 3% (+/-) range in a similar timeframe? (Obviously no one knows the future)

If that's likely to happen then gilts become even more compelling unless you think the government might default but if that happens then wherever you store your GBP it will be pretty worthless anyway.

cloud_dog

I don't envisage a default, but I do envisage one of the two elements being proved wrong (4.75% or Gilt yields)

I have a largish chunk sat in CSH2 to repay the mortgage (end 2025) and to support early retirement (from May 2025; whoopeeeee), and so my timescales are shorter than your initial post, probably around the 5 years.  So I am wondering about moving some of the CSH2 into (a) Gilt(s).  It is always the challenge of giving up the current c. 4.9% (until the BoE continue reducing (assuming they will move, as I am not feeling rates will reduce too quickly TBH), but understanding that rates will drop and accepting that a c. 4.5% over the next c. 4.5 years will be value enhancing.

Long/short; thinking about moving a year or two of income into Gilt(s).

InvesterJones

InvesterJones said:

I was happy to hold to maturity and therefore satisfied with the yield (and can ignore the 'oh but I could have got an extra 0.3% if I buy some more later').

There's always the buyers regret when the price keeps going down. We just have to accept we are unlikely to time the bottom of the market with perfection unless we get very lucky. I've seen my recently acquired gilts drop circa 5% this month but nevermind they will just compound better. As my equities have done so well my pensions contributions are now going 100% into gilts.

Well in my case I'm less concerned about getting the absolute 'best' return through timing the market, more once the return was good enough for the risk profile then I'm in.

Hoenir

cloud_dog said:

Hoenir said:

OBR forecast the median mortgage interest rate to be around 4.75% in 2027. Suggests there's a rollercoaster to be ridden for a while. 

From that could we deduce/assume that average savings rates could be around the 3% (+/-) range in a similar timeframe? (Obviously no one knows the future)

OBR don't forecast future BOE base rates. My assumption would be that they did expect base rate to fall (at the time of the report). With the margin above base rate for mortgage lending being in the range of 1% - 2%. Effectively a return to the era pre the GFC of 2007. Which supports your assertion of average savings rates closer to 3%. Jury remains out on the impact of QT. This is uncharted territory with no historical precedence. The unknown factor is how long QT will continue (BOE £8 billion a month / £100 billion a year).  In the USA , the current concensus is July for the Fed. ECB are currently working on the basis that every €1 trillion of QT would add in the region 35 bps - 50bps onto Government borrowing costs. 

Interesting times. Unlikely to be dull.