UK investors suffered from a negative real income of almost £8bn from their holdings of UK Gilts in the last year, says Hadrian’s Wall Capital, the London-listed fund manager.
Inflation has far outstripped income from Gilts, with real yields (adjusted for inflation) having fallen from 2.11% in 2014/15 to -1% in 2017/18 (see graph below). Despite the fall in real yields UK investors continue to add to their investments in UK Government debt. The market value of Gilt holdings by UK investors has more than doubled to £779bn in 2017-18, up from £338bn in 2007-08.
Hadrian’s Wall Capital explains that quantitative easing since the financial crisis has kept yields on Government debt at historically low levels. This means bondholders are more exposed to any rise in inflation which can push the real income of the bonds into negative territory.
A breakdown of types of investors who saw negative real income from their holdings of UK Gilts last year shows that:
- Private investors saw negative real income of £38.9m on holdings of Gilts of £3.8bn
- Insurance companies and pension funds saw negative real income of £5.9bn on holdings of Gilts of £597bn
- Financial services companies (excluding banks, insurance companies and pension funds) saw negative real income of £1.7bn on holdings of Gilts of £171.1bn
- Not-for-profit institutions saw negative real income of £41m from holdings of £4.1bn
- UK businesses (excluding financial services) saw negative real income of £18.4m from holdings of £1.8bn