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You may have heard or read that Gilt yields have been rising sharply recently. Rarely, however, is one told what the percentage change in the underlying Gilt has been, whether over the day or, of more relevance, a longer period. <\/span><\/span><\/p>\n<\/div>\n\n
You may also have heard that Gilts are low risk, perhaps from an investment professional. They offer steady – low risk – returns, you perhaps were told, because the UK government and others like it do not tend to default. The reason for this is that governments can always increase taxes if necessary in order to make coupon and principal payments to bond holders. Bond holders, in return, accept returns from bonds commensurate with the lower risk.<\/span><\/span><\/p>\n<\/div>\n\n
Below is a chart of the Bloomberg Barclays 15+ Gilt Index, or rather an ETF that tracks it. It is adjusted for inflation as indeed all financial asset prices should be – what \u00a3100 buys you today is very different to what \u00a3100 bought you 20 years ago, and two nominal amounts should never, in my view, be compared with each other. Unless, that is, they are first adjusted for the change in the price of goods and services over the 20 years…<\/span><\/span><\/p>\n<\/div>\n\n
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