Why gilts are not as safe as you might think

12.05.2006

“Gilts are often seen as the safest investment money can buy,” says Magnus Grimond in The Times.

But this year’s tumultuous market “is a reminder that you can still lose money with state backing”. Heavy buying by pension funds sent gilt prices soaring (and yields tumbling) in January before expectations of interest-rate rises prompted investors to sell up in search of better value elsewhere.

The resulting fall in prices has seen yields on many gilts recover by more than 10%, but many analysts say they’re still too low, given higher returns can be got from bank accounts.

“Prices have some way to fall before we can class them as attractive,” says Alex Scott of Seven Investment Management, quoted in The Times.

Free Daily Email sign up

Sign up here

Money Morning is the FREE daily email from MoneyWeek – a punchy round-up of the latest investment news and profit opportunities. DON’T MISS IT!