Phoenix Group, the UK’s largest long-term savings and retirement business, has announced that it is once again purchasing gilts, despite the recent turmoil in the bond market. The company, which manages £269bn on behalf of 12 million customers, believes that gilts now offer good value compared to other assets and has started shifting money into British government debt. This decision comes as violent moves in government bonds have dominated the markets, leading to a surge in bond yields and raising borrowing costs. The rise in yields has been attributed to a bond market sell-off and the divergence in growth rates and inflation between the UK and the US. The Bank of England and the Federal Reserve have chosen not to increase their main interest rates, but the expected rise in US rates has led investors to sell US and UK bonds, resulting in a fall in the value of the pound. Phoenix Group's decision to resume buying gilts highlights the confidence in the stability and value of British government debt amidst the current market volatility.
The yields of gilts, loans to the UK government, have now risen higher than they were even after the mini-Budget as investors cash in these investments, bringing the price down (and causing the yield to go up). This affects our retirements as many “safe” pension funds have been invested in gilts, among other things. And as the value of gilts have gone down, it has impacted the value of these pension funds.
The potential impact of a UK Labour Party victory on the gilts market has also been discussed. If the Labour Party were to win the next general election, it could lead to a sell-off in UK government bonds, known as gilts. This is because the party's policies, such as increased government spending and nationalization of key industries, could raise concerns about fiscal sustainability. The gilts market is currently pricing in a higher probability of a Labour victory, with yields on 10-year gilts rising. However, the market's reaction could change depending on various factors, including the specifics of Labour's policies and the overall economic environment. Investors should closely monitor political developments and their potential impact on the gilts market.
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