Talking PointFeb 17 2023

UK bonds rise 14.5% following last year's 'mini-Budget'

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UK bonds rise 14.5% following last year's 'mini-Budget'
Former British Prime Minister Liz Truss speaks outside Downing Street. (AP Photo/Frank Augstein/Fotoware)
ByIma Jackson-Obot

The value of UK bonds have risen significantly, after hitting a bottom following September's "mini-Budget" fiasco in 2022, data has shown.

According to data from ADDX, the digital exchange for private markets it rose by £450bn (14.5 per cent) between mid-October and mid-January.

Since hitting a low on October 12, the value of gilts has risen 12.9 per cent from £1.49tn to £1.68tn over the last 16 weeks. Over the same period, the value of UK corporate bonds has risen by £16 per cent from £1.61tn to £1.87tn.

ADDX said the dramatic crash in prices following the mini-Budget meant UK bonds had become far more appealing for income investors. In October, the yield on 10-year gilts rose to almost 4.5 per cent, their highest level since October 2008, the middle of the last financial crisis.

For income investors, UK bonds have made an important comeback over the past few months.Oi-Yee Choo, ADDX

Following the September "mini-Budget", which saw former Prime Minister Liz Truss and former chancellor Kwasi Kwarteng under extreme fire for their tax-cutting policies, the value of UK bonds crashed by £1.2tn (28 per cent).

This was a fall exacerbated by enforced selling of gilts by UK pension funds as their liability driven investment strategies started to unravel.

As ADDX explained, an eight-year bull market in fixed income had led to UK bonds becoming very unattractive investments for investors seeking yield.

During the pandemic, 10-year gilts briefly yielded less than 0.1 per cent. These yields have since settled between 3 per cent and 3.5 per cent.

UK bonds fell far further than global bond markets over the same period, with the MSCI Investment Grade Corporate Bond Index declining by 10 per cent from late September to mid-October before recovering those losses by the end of 2022.

The FTSE World Government Bond Index rose 3.8 per cent between the end of September and the end of the year, the company added.

Oi-Yee Choo, chief executive of ADDX, said: "For income investors, UK bonds have made an important comeback over the past few months. Both sovereign and corporate bond yields are now of interest for the first time in almost a decade.

“This forms part of a broader trend for investors to look more closely at fixed income again. The crash in prices in 2022 drew investors back into the market.

"Those who have held bonds as a significant part of their portfolios had a difficult 2022, but those entering the market now may be able to pick up underpriced assets.”

In the rising rate environment, ADDX said it has seen increased levels of interest in fixed income assets on its platform.