Industry Updates

Investors pile into UK gilt ETFs as yields hit highest point since 2008

Two-year gilt yields peaked at 5.5% in July

Theo Andrew

City of London UK

Investors piled almost €1.5bn into gilts ETFs in July as yields hit their highest point since 2008.

The yield on a two-year UK gilt peaked at 5.5% on 7 July as investors bet on the Bank of England to raise interest rates to a 25-year high of 6.5% in a bid to control inflation.

As a result, the €3.5bn iShares UK Gilt 0-5yr UCITS ETF (IGLS) gained €1.1bn net new assets as investors favoured shorter duration, according to data from ETFbook.

Elsewhere, the iShares Core UK Gilts UCITS ETF (IGLT) – which has an average maturity of 12.13 years – recorded inflows of €233m while investors poured €46m and €40m into the iShares £ Index-Linked Gilts UCITS ETF (INXG) and the Invesco UK Gilt 1-5 Year (GLT5), respectively.

Invesco said UK gilts were its second strongest category for fixed income inflows in July globally, accounting for $1.5bn of its $9.3bn net inflows into bonds, behind US Treasuries at $2.2bn.

The challenging inflation reading in the UK – which hit 8.7% in May – turned investors away from the stock market and into bonds.

Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said: “Challenging inflation and a mixed domestic growth picture turned investors off stock markets – but also pushed up interest rates, making UK gilts an attractive investment for those searching for yield and capital preservation.”

Inflation eased over June – falling to 7.9% – with two-year UK gilt yields falling to 4.9% despite the Bank of England raising rates for the fourteenth time in a row to 5.25% earlier this month.

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