Turmoil in the bond market has prompted a surge of interest from everyday savers seeking to take advantage of higher returns.
Retail investors are rushing to buy gilts – as UK Government bonds are known – after a recent surge in their yields, which are the effective interest rate offered.
Andy Bell, the founder of AJ Bell, one of Britain’s leading consumer stockbrokers, said monthly buying volumes for gilts were now “about six times higher than they were in autumn 2022” after Liz Truss’s mini-Budget triggered a similar spike in bond yields.
Rival platform Hargreaves Lansdown said data for the four days to Thursday January 9 showed it was already the busiest week for UK bond purchases since October.
The uptick comes after a surge in gilt yields over the past week, triggered by concerns about low growth and rising inflation in Britain. Yields are the interest rate paid on bonds and the market moves are a sign that investors are demanding higher returns to lend money to Britain.
Mr Bell said: “The higher yields go, the more compensation would-be buyers are getting for the risks involved, such as inflation, or changes in interest rates.
“Customer interest in UK gilts started to pick up when yields spiked higher under Liz Truss and it has kept on climbing ever since. It has taken a further step up this week, and a big step up, too, for both short and long duration.”
While retail investors are buying gilts, major City institutions such as pension funds and asset managers are avoiding or selling UK government debt, which is why yields are rising.
The interest rate on 30-year government bonds hit its highest level since 1998 last week in a sign of the scale of investor concerns. Meanwhile, the Government now has to pay 4.8pc to borrow for a decade, up from 3.8pc as recently as September.
The market moves have put Rachel Reeves at risk of breaching her fiscal rules and put pressure on her to find new ways to balance her Budget.
Investors are bracing themselves for more bond ructions this week when markets re-open on Monday morning.
Nuwan Goonetilleke at Phoenix Group, Britain’s biggest long-term savings and pensions provider, said: “Fundamentally, the Government and Rachel Reeves have got into an unintended fight with the bond market around sluggish growth, and there is no real way out of that. Prudence is required in terms of spending.”
Worryingly, the pound has also weakened alongside rising gilt yields in a sign that international investors are avoiding the UK altogether. Sterling fell to a two-year low against the dollar on Friday.
