Anyone buying gilts right now?

zagfles

I've got an IL gilt ladder which I intend to use between retirement and SP age, leaving drawdown from mainly equity investments until later. But it's quite tempting now to swap them around, swap the short term for longer term IL gilts and use drawdown from equities before SPA, then either a ladder or annuity with the gilts after SPA. 

zagfles

Alexland said:

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.

One way they can effectively "default" is to inflate away debt. Something like 75% of govt debt isn't index linked, if the debt burden does become excessive it must be tempting for the govt to stoke a bit of inflation. Their "income" ie taxes will rise with inflation, even more so if they use fiscal drag to subtlety increase taxes by not indexing allowances (as they've already been doing for a few years).

Personally I wouldn't even consider longer term flat gilts, anything over 10+ years has to be linkers. 

Alexland

cloud_dog said:

I have a largish chunk sat in CSH2 to repay the mortgage (end 2025) and to support early retirement (from May 2025; whoopeeeee)

Wow that's great news I'm really pleased for you.

It's great to see plans by long term forum members come true.

Roughly another decade for me sadly.

MaxiRobriguez

Been a while...

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

Can see the appeal of government stoking inflation to reduce debt burden but reality is they'll be booted out of office if inflation ticks upward and remains high.

Just feels like being paid reasonably well to hold what is a net upside opportunity.

Alexland

zagfles said:

I've got an IL gilt ladder which I intend to use between retirement and SP age, leaving drawdown from mainly equity investments until later. But it's quite tempting now to swap them around, swap the short term for longer term IL gilts and use drawdown from equities before SPA, then either a ladder or annuity with the gilts after SPA. 

If you can see enough return from the IL gilts to grow old with then wow that's great although it would be putting all your retirement income provision the trust of the UK gov which carries some risk. I don't really understand how you would be able to rely on equities for the early stage of your retirement given their volatility.

zagfles said:
Personally I wouldn't even consider longer term flat gilts, anything over 10+ years has to be linkers. 

I guess it depends how we plan to use the money tied up long term in gilts. I am matching them against a specific liability that's not going to increase with inflation (my mortgage) so the effects of inflation in the next decade (or more if my protected pension access age doesn't work out) doesn't really matter..

Hoenir

zagfles said:

Alexland said:

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.

One way they can effectively "default" is to inflate away debt. Something like 75% of govt debt isn't index linked, if the debt burden does become excessive it must be tempting for the govt to stoke a bit of inflation. Their "income" ie taxes will rise with inflation, even more so if they use fiscal drag to subtlety increase taxes by not indexing allowances (as they've already been doing for a few years).

The overall tax burden will shortly be at a record high. There's only so much plate spinning that can be performed. Before they start crashing to the ground. 

Squeeze too much and the economy will simply contract. A US multinational , for example, will simply find an alternative home to deploy it's capital. Business cares not one iota. Ruthless real world economics.  

zagfles

MaxiRobriguez said:

Been a while...

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

Can see the appeal of government stoking inflation to reduce debt burden but reality is they'll be booted out of office if inflation ticks upward and remains high.

Just feels like being paid reasonably well to hold what is a net upside opportunity.

Why? As long as peoples' incomes are rising with inflation most won't care, so maintain the triple lock, index benefits etc, generally wages will rise with inflation or more (in fact that's often the main cause), and inflation is good for people with debt, like mortgages, in the same way as it's good for indebted governments. 

Countries like Turkey have had sky high inflation for decades on end, it doesn't cause rioting on streets, people learn to live with it and cope with it. I don't think we'd ever get that bad, but I wouldn't rule out a tweaking up of the BoE inflation target. It's less likely to cause a drop in govt popularity than alternatives like increasing taxes or cutting NHS spending etc to fund debt interest.  

Alexland

MaxiRobriguez said:

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

None of us are getting younger and the sensible part of me thinks I'll probably never go back to 100% equities and I should at least always hold the proportion that's intended to repay the mortgage in gilts but then I know if I see the equities drop far enough I'll be in there like a pig in poo as there's always the chance of using inheritance to repay the mortgage or I could just downsize as the house is way too big anyway.

But for now I'm struggling to see enough risk premium on equities. Even if you disregard high US valuations then if they are only going to deliver their long term average of a couple of percent above current bond rates you might as well wait in bonds as there's usually an opportunity every decade to buy equities at a 30-50% reduction. Not that I would advocate such extreme market timing but that's how the maths seems to be looking at the moment.

MaxiRobriguez

zagfles said:

MaxiRobriguez said:

Been a while...

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

Can see the appeal of government stoking inflation to reduce debt burden but reality is they'll be booted out of office if inflation ticks upward and remains high.

Just feels like being paid reasonably well to hold what is a net upside opportunity.

Why? As long as peoples' incomes are rising with inflation most won't care, so maintain the triple lock, index benefits etc, generally wages will rise with inflation or more (in fact that's often the main cause), and inflation is good for people with debt, like mortgages, in the same way as it's good for indebted governments. 

Countries like Turkey have had sky high inflation for decades on end, it doesn't cause rioting on streets, people learn to live with it and cope with it. I don't think we'd ever get that bad, but I wouldn't rule out a tweaking up of the BoE inflation target. It's less likely to cause a drop in govt popularity than alternatives like increasing taxes or cutting NHS spending etc to fund debt interest.  

I don't think using Turkey as a comparison is sensible. Look at Europe and the US: Governments of both left and right which have been in position when inflation was high have been booted out at the first opportunity. Partly the reason is because people's incomes don't all rise with inflation. Only a minority of extremely fortunate boomers who can call upon an IL DB pension and the triple lock can sit back with their feet up whilst everyone under the age of 60 gets hit with their own triple lock of fiscal drag, tax rises and income stagnation. 

MaxiRobriguez

Alexland said:

MaxiRobriguez said:

I've loaded up on long duration (~20 year gilts) last few weeks. Opportunity to secure a risk free 5+% yield over the long term seemed too good to turn down. Ideally it's a short term hold and I will pivot back to 100% equities in the event of a stock market rout, but if that doesn't happen I'm quite happy holding to maturity.

None of us are getting younger and the sensible part of me thinks I'll probably never go back to 100% equities and I should at least always hold the proportion that's intended to repay the mortgage in gilts but then I know if I see the equities drop far enough I'll be in there like a pig in poo as there's always the chance of using inheritance to repay the mortgage or I could just downsize as the house is way too big anyway.

But for now I'm struggling to see enough risk premium on equities. Even if you disregard high US valuations then if they are only going to deliver their long term average of a couple of percent above current bond rates you might as well wait in bonds as there's usually an opportunity every decade to buy equities at a 30-50% reduction. Not that I would advocate such extreme market timing but that's how the maths seems to be looking at the moment.

I'm not idealistic. I'll adapt my situation as needed. I've been 100% equities from when I started investing in 2014 through to Q3 2024, with my strategy to balance out the racy US growth stocks with UK high dividend companies.

With bond yields rising then the tug of those UK dividend companies starts to wane. I still hold a few which I think are value (L&G, M&G to name a couple) but I have been selling down some of them like my Barclays and BATS holdings, and the capital raised from those sales have gone into bond purchases.

c10% of my portfolio now in bonds. If nothing changes in the near term this % will increase as I'll buy bonds over stocks at the moment. Still long on US (equal weighted/small cap) and China equities.