The 4% yield on UK bonds lures investors who never buy gilts

BLOOMBERG

Before this year, Dan Boardman-Weston hadn’t bought UK government bonds in more than a decade. Now yields close to 4% are putting short-dated gilts on his radar.
New investors like Boardman-Weston, who runs BRI Wealth Management, are a boon for Chancellor Jeremy Hunt. He’s expected to focus the UK government’s bond sales on closer maturities when he unveils the Spring Budget this week.
According to a Bloomberg survey, bonds due in seven years or less will account for almost 40% of the Treasury’s borrowing, compared with a historical average of 27%. “We do still have an amount of cash on clients’ portfolios because we are nervous on markets generally,” said Boardman-Weston, chief executive and chief investment officer at BRI.
After buying eight- and nine-year gilt maturities for his clients earlier this year, “we’re considering whether to allocate some of that to the short end of the curve,” he said. Based near Coventry, BRI has about £550 million ($663 million) under management.
Though smaller than initially feared — thanks to a rosier economic outlook and improvement in public finances — the wall of issuance is still daunting.
Swelled with funds to get households and firms through the cost-of-living crisis, the borrowing target will clock in at £233 billion in the coming fiscal year, according to the median prediction in the poll of 15 banks. The task of the Debt Management Office, which runs the gilt sales, has also been made trickier by the Bank of England withdrawing stimulus as it shifts from being a buyer to a seller of bonds. The central bank is now unwinding debt purchases at a pace of £80 billion per year.
According to the Bloomberg survey, just 21% of issuance is forecast to be long-dated, compared with a historical average of 30%. That may reflect lingering damage from the gilt meltdown in September, when pension funds were forced to unload long-dated bonds following the disastrous mini-budget under then-Prime Minister Liz Truss.