GILTS UK vs US

20122013

Are US Gilts / Treasury bonds safe if held until maturity?  as I am thinking whether it would me make more sense investing in them then the UK gilts

OldScientist

The basic mechanism is the same, i.e., a $100 of a US treasury with a 4% coupon would give $4 in interest per year (in two instalments) and $100 return of capital on maturity.

One additional risk, compared to gilts, is due to currency exchange rates - $100 may purchase a greater or smaller number of £ at maturity.

Inflation risk (for nominal treasuries) would be the same.
Comparing the risk of default between the US and UK is tricky (the US has slightly higher credit ratings than the UK)

wmb194

20122013 said:

Are US Gilts / Treasury bonds safe if held until maturity?  as I am thinking whether it would me make more sense investing then the UK gilts

Yes. You introduce currency risk though. If you're talking about owning them directly rather than via a fund your problem might be buying them if you don't have a US brokerage account but it looks like IKBR offers them to people domiciled in Europe.

https://investingintheweb.com/education/how-to-buy-us-treasury-bonds-europe-uk/

aroominyork

OldScientist said:

Comparing the risk of default between the US and UK is tricky (the US has slightly higher credit ratings than the UK)

Surely it's not tricky. Neither will default. If you think they might isn't it time for gold bullion under the bed?

Aretnap

What do your mean by safe? In both cases you get a known amount of currency back at a known time, assuming no default. In both cases default is a negligible risk (or at least might be treated as negligible as it would involve a cataclysmic event which would also destroy the value of any other investment that you held instead).

Assuming you live in the UK and spend most of your money in pounds sterling however US Treasury bonds are significantly riskier than giltss because of the risk of currency fluctuations # if the pound rises relative to the dollar then you get back fewer pounds than you started with. You either have to accept that risk, or hedge against it which introduces extra costs and counterparty risk.

masonic

https://www.forbes.com/sites/eriksherman/2025/02/23/why-trumps-mar-a-lago-accord-would-financially-matter-to-you/

DRS1

Gains on UK gilts are not subject to CGT for a UK taxpayer.  Presumably the same is not true of gains on US Treasury Bonds?

Gary1984

I think the US Treasuries are probably slightly riskier. I wouldn't put it past Trump for him to decide all us foreign debt holders are fleecing the US and try and swap the bonds held for lower interest versions or force a buy back at <100% of their market value. The link above suggests he's already mooted this idea.

There's also the US debt ceiling. Periodically the US comes close of running out of money and needs Congress to come to an agreement to raise the debt ceiling so they can sell more bonds and pay their bills. Agreement has always been found but if this high stakes game of chicken ever goes wrong then they wouldn't have the funds to pay interest and maturities on these bonds and they would need to default on them.

Both events are unlikely to actually happen, although both seem plausible enough.

wmb194

DRS1 said:

Gains on UK gilts are not subject to CGT for a UK taxpayer.  Presumably the same is not true of gains on US Treasury Bonds?

Yes, good point. It fails the first test to be a "qualifying bond" i.e. that it needs to be "expressed" and redeemable in sterling.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg53706

https://uk.practicallaw.thomsonreuters.com/3-107-7092

Bostonerimus1

It's hard to avoid US Treasuries and the US bond market in general because it's so large. But I've reduced the amount of money I have in US bonds because of the level of US borrowing and the policies of the current administration.

PixelPound

DRS1 said:

Gains on UK gilts are not subject to CGT for a UK taxpayer.  Presumably the same is not true of gains on US Treasury Bonds?

Same is not true if the UK gilt is in a ETF.