Gilts no longer a 'must avoid' investment

The world's biggest bond investor, Pimco, has done a U-turn on gilts, upgrading UK government bonds after branding them a ‘must avoid’ investment back in January.

Markets

Other markets

Market Data Notice

More market charts

by James Phillipps on Jul 14, 2010 at 13:43

Gilts no longer a 'must avoid' investment

The world's biggest bond investor, Pimco, has done a U-turn on gilts, upgrading UK government bonds after branding them a ‘must avoid’ investment back in January.

At the time, Bill Gross, the group’s managing director, warned that the UK’s massive budget deficit meant gilts were ‘sitting on a bed of nitro-glycerine’ and Pimco would not participate in any auctions this year.

However, gilts have been one of the top performing government bond markets this year with yields on the benchmark 10 year notes down from 4.27% on February 19 to 3.39% as investors reacted positively to the Con-Lib coalition’s austerity Budget.

According to reports, this has prompted Pimco to upgrade its outlook on gilts to neutral, although many will feel that the group has missed the boat given the extent of the recent rally.

Certainly many investors felt Gross’s comments were exaggerated with M&G Optimal Income fund manager Richard Woolnough arguing that value will soon emerge in gilts as the government tackled the debt problem.

He said: ‘A bed of nitroglycerin could be exactly what the sick UK economy needs as it is one of the oldest and most useful drugs for restoring patients with heart disease back to good health’.

Indeed, several fund managers argued that Gross’s attack was symptomatic of the bond vigilantes’ failed attack on the gilt market after they under-estimated the power of demand from pension funds needing to match liabilities.

Email a friend

Email me when someone comments on this article Print

7 comments so far. Why not have your say?

why are these guys called "bond vigilantes" anyway

they're less Dirty Harry, more one of his bumbling sidekicks

report this

With inflation running at 3.2%, it is hard to get excited by a zero growth asset yielding 3.39% when a standard rate taxpayer needs at least 4.0% and a higher rate taxpayer needs over 5.3% to keep pace in real terms. Perhaps investors within a pension fund wrapper can justify it for risk diversification or liability matching purposes but for anyone else "Ho Hum".

report this

Never trust a man with a dodgy hair piece

report this

Hi Chartered Account TR21 currently yields around 5.15% and TR17 5.80% and if held in self select ISA, such as Alliance Trust , it can be tax free .

HO HUM !!!!! 2 stock tidli do & tidli dum

little office boy without any long degrees

p s includes buying cost !!!

report this

Thank you Harishbabu Karia for your comment. My comments related to the "benchmark 10 year note rate". It is not clear to me what your TR21 and TR17 actually are but by implication if they are yielding more than 3.39% then they are investing in something different than "10 year notes" which is fine but higher yields in the bond market usually mean higher risk. I may need to keep humming a bit longer.

report this

There can't be many people wanting to lose money by buying 1 year guilts at just over 0.5%

report this

Harishbabu Karia

Jul 15, 2010 at 12:29

TR17 = treasury note maturing in 2017 (Gilts issued by bank of England) cupon 8.75%

TR21 = treasury notes maturing in 2021 ( Gilts issued by bank of England)

cupon 8%

If you are seeking income than these two stocks are fine, if you are trading in these stock than if & when the intrest rate goes up the value of stock can go down. TR21 is a 10 year note.

report this

Please sign in here or register here to comment. It is free to register and only takes a minute or two.