- AJ Bell has seen a steady increase in retail investors buying and selling gilts
- Reasons why gilt yields have soared this year
- Tax benefits of investing in gilts
- Ways to invest in gilts directly or through funds
- How gilt ladder strategies work
Dan Coatsworth, head of markets at AJ Bell, comments:
“Since the start of this year, there has been a growing sense that Keir Starmer’s leadership of the country and the Labour Party is fading, with last week’s disastrous local election results potentially spelling the end of his premiership. This intense speculation has led to uncertainty about the future of the country under a new leader, which has fuelled a steady rise in the cost of government borrowing, or gilt (UK government bond) yields.
“This trend has reached a crunch point this week – both the 30-year and 10-year gilt yields have hit levels last seen in 1998 and 2007 respectively. But this has also underlined a burgeoning appetite for gilts among a small group of retail investors on the AJ Bell platform.
“There are huge yields on offer relative to history, and certain gilts are going for a song. It is no wonder more retail investors are dipping their toes in the water.
“Over the past week, gilts have ranked in top 10 for net flows on AJ Bell’s DIY investment platform. When there are big movements in the bond market, it's common to see gilt purchases for large sums but from a small number of buyers, and that’s what has happened again.
“It’s not just this year. AJ Bell analysed DIY customer trends back to the start of 2022 and found that gilt interest has risen consecutively each year. The number of gilt transactions in 2026, based on net buy and sell trades year-to-date, is already greater than the total placed in 2024.
“More than half of 2025’s flow of money into gilts on AJ Bell’s DIY platform has happened so far this year, and we are not even at the midway point in the calendar.
“In general, the greatest appeal is for wealthier investors seeking an alternative to cash, since holding a gilt in this way can compare favourably with a cash savings account once you factor in the net position after tax.”
What’s driving the latest volatility on bond markets?
“Inflation and politics are the root cause of the current gilt market sell-off – with yields rising as prices fall.
“Interest rate expectations influence bond markets – and we are now in a situation where the market is pricing in two or three rate hikes this year whereas there was talk of interest rate cuts before the Iran war began.
“When markets believe there is a greater probability that rates will go up, gilt yields move higher. That increases the cost of borrowing for the government, and when the pressures become severe it is harder to achieve public spending plans without needing to raise taxes. It puts the government in a precarious position.
“Gilt yields also rise when the market is unhappy about political policy or loses faith in the person running the country. If yields suddenly rise by a large amount, it can force change in government policy or threaten the leader’s position.
“We now have two headwinds combining forces to make bond markets front page news.
“Yields were already rising on the prospect of a prolonged Middle East conflict keeping oil prices higher for longer, which could push up interest rates to fight inflation. Labour’s poor showing in the local elections has compounded speculation that Keir Starmer’s position as prime minister is fragile, meaning bond investors want a greater reward for the risk of lending money to the government.
“Heightened speculation of a leadership challenge this week has left the bond market dazed and confused. Bond investors do not like uncertainty, and there is a strong possibility we’re facing a seismic shift in the outlook for politics over the coming decades.”
Why is the 30-year gilt yield in focus?
“Normally the 10-year gilt yield is considered the benchmark to study, but the 30-year gilt yield tends to be more important in relation to politics. That is because the UK government typically issues long-term debt, and bonds investors must take a view on a major shift in the political landscape and how that might affect the economy in the years ahead.
“It’s no longer a two-party race to run the country – Reform UK and the Green’s ascent in last week’s local elections, as well as the Liberal Democrats’ ongoing gains, means the political battlefield is being overhauled.”
The power of bond vigilantes
“When bond investors get uncomfortable, they sell – bond prices fall, and yields rise. Unusually large moves on the bond market tend to get people’s attention, and there is a chance that a continuation of current bond yield trends gives Starmer no choice but to step down.
“There are historic examples of this dynamic at work, such as during Liz Truss’s short-lived tenure as prime minister and Kwasi Kwarteng’s as chancellor. The 30-year gilt yield was 3.378% when Truss became prime minister on 6 September 2022, before the mini-Budget shocked the market with £45 billion worth of unfunded tax cuts and no OBR forecasts.
“Investors hated it, and yields soared to 4.986% four days later, prompting the Bank of England to announce an emergency intervention by scooping up long-dated gilts. Over the following month, Kwarteng lost his job as chancellor and Truss resigned.
“For a more recent example, 30-year gilt yields went from 5.233% on 1 July 2025 to 5.415% a day later when Starmer refused to guarantee Rachel Reeves’ position as chancellor amid broad market concerns about fiscal policy. That was a sharp movement in a single day, and yields reversed a day later when Starmer reacted to market chaos by backing Reeves.
“Do not underestimate the power of bond vigilantes. If investors are unhappy, they make it perfectly clear, and change could happen quickly as a result.
“We saw this dynamic at work across the pond last year when Donald Trump’s Liberation Day tariff event on the White House lawn spooked bond investors. US Treasury (US government bond) prices fell, yields soared, and Trump then paused tariffs for 90 days. Trump would never admit it, but the bond market reaction gave him no choice but to change course.”
Why would someone want to buy gilts now?
“It might seem perverse that investors consider gilts when all the headlines are about a bond market sell-off. There are two reasons why contrarians relish such a backdrop and get ready to pounce.
“History shows that bond vigilantes have great power and can force governments to change direction. Investors buying gilts today might take the view that a change in political leadership in the UK could help to calm markets and gilt prices would go back up.
“Buying gilts now would lock in attractive yields or could create an opportunity for a quick capital gain for investors who do not want to hold until maturity. The big unknown is what is happening with inflation as a prolonged Middle East crisis could keep gilt prices low.
“Alternatively, bond investors might focus on ultra short-dated gilts trading cheaply. They could buy outside of an ISA or SIPP and hold until maturity when the issuer redeems the bond at par value. Gilts are exempt from capital gains tax, so this strategy has tax advantages for individuals who might have already used up their ISA allowance.”
How do you buy gilts?
“Investors can buy gilts online via investment platforms. They can buy existing gilts of different maturities on the secondary market or via auctions.
“While gilts are increasing in popularity among retail investors, most individuals gain access via bond funds rather than buying individual bonds. This ranges from exchange-traded funds tracking a basket of gilts to broader funds invested in a selection of bonds issued by governments in the UK and overseas.
“The most popular gilt-related funds among AJ Bell DIY investors include iShares Core UK Gilts ETF, iShares Index-Linked Gilts ETF, Vanguard UK Gilts ETF and iShares UK Gilts 0-5 Year ETF.”
Gilt ladder strategy
“For those comfortable with buying individual gilts – who tend to be more experienced investors – the concept of a gilt ladder portfolio is making waves as a tax-efficient way to invest and meet future outgoings.
“It involves buying low-coupon gilts that mature over different periods at cheap prices. The bulk of the returns happen when the issuer redeems the bond at maturity – with the investor enjoying tax-free capital gains.
“Investors choose gilts based on their maturity to match the point when they need money to meet large outlays, such as education expenses or paying off a mortgage.
“Buying individual gilts requires a good level of investing experience and understanding of bond prices. It’s not for everyone, and anyone less experienced who is considering going down this route may want to speak with a financial adviser before doing so.”
