Short dated Gilts
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Discussion

Padron

Original Poster:

240 posts

1 month

Yesterday (00:19)
quotequote all
I'm struggling to see a downside to investing in short dated gilts, especially for high rate taxpayers. Assume you have used up your ISA allowance, made all the pension contributions you can and have a sum of money that you want to invest at low risk and are prepared to tie it up for 2 years. You have othe higher risk investments but want to use these funds in a lower risk instrument for balance. The options include high interest savings accounts or Gilts.

Say for example you buy a Gilt paying a very low coupon which matures in 2 years which is selling for say 92p. You hold it till maturity and get an 8.7% gain (8p/92p) at the end of those 2 years, which being a Gilt is free of CGT. You pay some income tax on the very small coupon as well but that is trivial.

To get the same return for a high rate tax payer you would need some sort of guaranteed investment that paid way more before tax.

So, assuming you've used up your Isa allowance, it seems a very good deal provided you are sure you want to tie the money up for 2 years.

Why would anyone use high interest savings accounts for cash instead of this? I presume being a low coupon, these sorts of bonds don't offer the same counter cyclical protection of higher paying bonds, though at least they are both safe and tax free.

Am I missing something here?

Edited by Padron on Wednesday 15th October 00:47

stuthemongoose

2,467 posts

235 months

Yesterday (00:43)
quotequote all
Just the last 18months when everyone started doing this biggrin

Yields down on what they were, but a very low risk/guaranteed return better than any savings account!

Greenmantle

1,791 posts

126 months

Yesterday (09:25)
quotequote all
You are not missing anything just the fact that putting money into buying US Tech stocks will yield you far greater returns (or lose all your capital).

Apologies but I was being flippant!
I am approaching retirement in less than 10 years so I have a dealing account for investing in UK small coupon gilts. (T26A, TN28).

Scootersp

3,771 posts

206 months

Yesterday (10:23)
quotequote all
Seems a good choice as long as things stay relatively stable over the 2 years. The current higher return is indicative of more risk, even if this is just elevated from just almost non existant to slight.

https://www.saltus.co.uk/investment-management-ins...

jesusbuiltmycar

4,925 posts

272 months

Yesterday (14:49)
quotequote all
Pardon my ignorance but how would I invest in GILTs? Is there a specific platform to use or is it a standard investment available via InvestEngine / Vanguard etc.

Edited by jesusbuiltmycar on Wednesday 15th October 15:04

nyt

1,900 posts

168 months

Yesterday (16:35)
quotequote all
I find the information at https://yieldgimp.web.app/ useful -- especially the grossed up yield figures

BadBob

90 posts

216 months

Yesterday (17:16)
quotequote all
Genuine question, is the risk here that inflation will rise and wipe out the return on the Gilt before it matures, rather than the UK going bankrupt and defaulting on paying it at maturity? In my simple mind there's a valid concern about inflation even though I think the UK will stay afloat.

butchstewie

60,849 posts

228 months

Yesterday (17:55)
quotequote all
BadBob said:
Genuine question, is the risk here that inflation will rise and wipe out the return on the Gilt before it matures, rather than the UK going bankrupt and defaulting on paying it at maturity? In my simple mind there's a valid concern about inflation even though I think the UK will stay afloat.
Yes.

Gilts are no different to fixed term savings account in a way i.e. you know exactly what you'll get if you lock your money in.

Index linked gilts should protect against inflation.

Padron

Original Poster:

240 posts

1 month

Yesterday (18:20)
quotequote all
As pointed out though, the biggest risk is that you miss out on the outsized gains in equities which, provided you can be disciplined, have historically always more than made up for the intermittent downturns.

Still tempting to stick the lot in bonds for a couple of years, turn off Bloomberg and stop worrying every time the market hiccoughs!

Derek Chevalier

4,537 posts

191 months

Yesterday (18:45)
quotequote all
Padron said:
As pointed out though, the biggest risk is that you miss out on the outsized gains in equities which, provided you can be disciplined, have historically always more than made up for the intermittent downturns.
What history?

https://ideas.repec.org/a/taf/ufajxx/v80y2024i1p12...

" The new historical record shows that over multi-decade periods, sometimes stocks outperformed bonds, sometimes bonds outperformed stocks and sometimes they performed about the same. New international data confirm this pattern. Asset returns in the US in the 20th century do not generalize. Regimes of asset outperformance come and go; sometimes there is an equity premium, sometimes not."

Mr Whippy

31,641 posts

259 months

Yesterday (20:55)
quotequote all
Scootersp said:
Seems a good choice as long as things stay relatively stable over the 2 years. The current higher return is indicative of more risk, even if this is just elevated from just almost non existant to slight.

https://www.saltus.co.uk/investment-management-ins...
If you’re holding to maturity it’s not a big issue though, unless you think the UK will default.

And they suggest lots of things on a global bond type view that doesn’t hold out to the raw data, seemingly…
https://wolfstreet.com/2025/10/13/the-huge-us-bond...


They’re a no brainer if you fit the OPs specs.

Greenmantle

1,791 posts

126 months

nyt said:
I find the information at https://yieldgimp.web.app/ useful -- especially the grossed up yield figures
Unfortunately Simon the owner of yieldgimp has decided to go down the subscription model.
I have replaced it with these now

https://giltsyield.com/bond/
https://lategenxer.streamlit.app/Gilt_Ladder
https://www.dividenddata.co.uk/uk-gilts-prices-yie...

Greenmantle

1,791 posts

126 months

jesusbuiltmycar said:
Pardon my ignorance but how would I invest in GILTs? Is there a specific platform to use or is it a standard investment available via InvestEngine / Vanguard etc.

Edited by jesusbuiltmycar on Wednesday 15th October 15:04
All the main dealing platforms have it

HL
AJBell
Interactive Investor
& Others

buying fee
monthly account fee
buy ./ sell spread - which is really tiny (usually 0.4 pence)

you need to look at the charts to hop in at a good deal
when yield is up price is down (look at max and min yields per gilt)
as a starter look at T26A or TN28 (these are both very small coupons so will attract vitually zero tax)

Phooey

13,284 posts

187 months

Yields here and in the US have dropped this past few days so you'd be better off waiting for them to rise again - which shouldn't be long - before looking to buy.

Ean218

2,028 posts

268 months

Money Saving Expert has a page on short dated gilts and CGT, including a returns calculator:

https://www.moneysavingexpert.com/savings/uk-gilts...