Retail investors are chasing gold as yields rise above UK savings rates

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With yields skyrocketing and many bank deposit rates unsustainable, retail investors have been scrambling to collect on UK government debt this year.

The Bank of England surprised markets this week by raising its base rate to 5%, the highest since 2008, while short-term bond yields rose further as markets priced in several more hikes.

Winterflood Securities, a government-appointed dealer in British government bonds that guarantees a continuous supply of gold coins to retail investors and asset managers, said retail trading volume rose sevenfold last month compared to May last year. rice field.

“Very few banks offer gilt rates,” said Peter Clarke, group chief executive of asset manager Bentley Read. “Securing a modest yield of 5% on two-year bonds is an attractive yield and the first time in 15 years that we have achieved that,” he said.

Hargreaves Lansdowne, the UK’s largest do-it-yourself investment platform, said June was likely to see record monthly gilt sales, with a 15-fold year-on-year increase in the 12 months to the end of May. Said it would speed up. This is despite a broad sell-off of government bonds pushing up yields.

The one-year Treasury yield, which has moved in line with interest rate expectations, closed at 5.3% on Friday. By comparison, the average one-year term from UK bank accounts is 4.54%, according to data provider Moneyfacts.

National Savings & Investments, a state-backed savings company, has even worse returns, with a 4% return on its one-year fixed bonds.

Winterflood’s head of fixed income Stacey Parsons said government bonds now offer a “huge opportunity” for investors’ portfolios, with brokerages shifting from trading fixed income exchange-traded funds to investing directly in UK government bonds. He said he sees a “trend”.

For most of the last decade, retail investors ignored gold because the returns were paltry and there was no incentive to own it. Mr. Parsons said the level of demand for gold “wowed a lot of people”, but “that’s about to change as investors try to get to the bond table.”

The popularity of gold coins is further enhanced by the way some gold coin profits are taxed.

Data from Interactive Investor, the UK’s second-largest retail investment platform, show that the majority of interest in government bonds has gone to bonds nearing maturity as investors hunt for locks, making them the most popular. Two issues mature in January 2024 and January 2025. You can use it at a fixed interest rate instead of cash.

These bonds offer relatively low interest payments known as coupons. However, most of the returns they offer come in the form of low prices compared to face value, resulting in capital gains for holders at maturity.

Sam Benstead, an interactive investor and collective deputy editor, said there are many investors who would benefit from no capital gains tax below par. “If you look at the top 10, [gilts sold], Only one bond has a maturity of 7 years or more. Short-term bonds are the most popular because investors want to secure higher interest rates,” he said.