Index-linked gilts: yields falling

Article Abstract:

UK index-linked government securities (gilts) have not performed as well as ordinary gilts, shares or cash in the year to Aug 1996, but their performance could improve, argues HSBC Markets. Their performance has been depressed by oversupply, but positive factors could come into play such as a downward revision of expectations for both inflation rates and interest rates. Gilts are also cheap in relation to equities. A change in government means that expectations of inflation are less certain which also favors index-linked gilts.

Economic aspects

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Attractive

Article Abstract:

Index-linked United Kingdom government securities have higher yields than equities, and this has often preceded periods when they outperform equities. Conventional government securities also make index-linked securities appear cheap, and the yield gap between the two types of securities is likely to increase rather than decrease. Bond yields are historically low world-wide, however, and index-linked bonds could be hit if yields were to rise together by the same percentage.

Government Bonds, Financial markets

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