What caught my eye this week.
Remember last summer when I pondered [1] whether an army of everyday investors – led by a legion of cash-rich city boys – had gobbled up so much of the low-coupon Treasury 2061 gilt that it was distorting the yield curve?
Readers steeped in the UK government bond market opined in the comments. I’d say the conclusion was “hmm, maybe a little bit.”
Well this week The Bank of England published [2] data showing that at the other end of the spectrum – the ultra-short end, where gilt issues will mature in a year or two – retail investors are definitely driving the bus. At least when it comes to the low-coupon issues.
Gilt-edged investing
Reminder: capital gains on gilts are free of capital gains tax [3]. You only pay tax on the income component of your total return.
As The Accumulator explained to members, this means that holding short duration low-coupon gilts [4] can deliver higher after-tax returns than cash for investors with a lots of spare change outside of tax shelters.
A graphic from the Bank of England illustrates the difference:
[5]
Source: Bank Underground [2]
For an investor who has filled up their ISAs (and perhaps maxed out on premium bonds [6]) this tax treatment makes short duration low-coupon gilts much more attractive than cash savings, where only a small tax-free savings allowance [7] shields your interest income from HMRC. Especially at the higher income tax rates [8].
It’s not surprising then that the Bank of England’s data shows ‘retail’ investors (individuals like you and me) own huge swathes of ultra-short low-coupon gilts:
[9]
Source: Bank Underground [2]
Roughly 80% of the free float 1 [10] of that low-coupon Treasury 2026 gilt is held by retail investors.
Compare that to the intermediate and long duration gilts. Here retail participation is far lower.
By comparison the shortest end of the gilt market is now an ordinary investors’ playground.
Millions of people or millions of pounds…
Of course ‘ordinary’ doesn’t necessarily mean your mum owns some.
There could be a relatively small number of cashed-up oligarchs whose wealth advisers moved their millions into ultra-short duration gilts, as opposed to it being the latest hot thing for Joe Public.
I first wrote about the tax advantages [11] of low-coupon gilts back in January 2024. I wouldn’t say the response was rabid.
My co-blogger’s typically in-depth explanation did garner a bit more interest [4]. But I suspect that after 2022 [12], some readers just hear the word ‘bond’ and shudder.
Well if you have a lot of unsheltered cash sitting around getting taxed then consider this your wake-up call.
Finally, the Bank’s holding data does shed more light on Treasury 2061, revealing that retail investor involvement here is actually very small.
That doesn’t mean the particular attractions [13] of Treasury 2061 aren’t distorting the yield curve. But it does suggest that it’s institutions (hedge funds and the like) who are driving that train.
Have a great weekend!
From Monevator
Asset allocation quilt: winners and losers over the last 10 years – Monevator [14]
Funding childcare: how to navigate a complex system – Monevator [15]
From the archive-ator: Ten ways to be a terrible investor – Monevator [16]
News
Returns on uninvested cash in shares ISAs could be charged 22% – This Is Money [17]
UK economy grew 0.3% in November, beating forecasts – BBC [18]
It’s a buyers market, as homes for sale reach an eight-year high – This Is Money [19]
Scotland is introducing a mansion tax for £1m homes – Property Industry Eye [20]
The UK is losing the [chemicals] industry that makes everything [Video] – Sky [21]
Silver and gold continue ‘flabbergasting’ rally – This Is Money [22]
HMRC reports a 65% rise in self-assessment payments via its app – GOV.UK [23]
A weight loss drug habit ‘could affect size of your mortgage’ – Guardian [24]
Some seven million Britons browse Rightmove every week for fun – This Is Money [25]
[26]
Global equities are booming – Topdown Charts [27]
Products and services
Disclosure: Links to platforms may be affiliate links, where we may earn a commission. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.
Marcus pays 4.55% on its new best buy one-year fixed savings – This Is Money [28]
Which type of mortgage should you choose in 2026? – Which [29]
Get up to £3,000 cashback when you open or switch to an Interactive Investor [30] SIPP. Terms and fees apply, affiliate link – Interactive Investor [30]
Building society launches new 100% mortgage – This Is Money [31]
TSB switch offer: up to £150+£50+£30 – Be Clever With Your Cash [32]
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link [33]. Terms apply – Charles Stanley [33]
Why do petrol prices vary so much from one station to the next? – Guardian [34]
Most travel insurance policies don’t cover winter sports – Which [35]
Homes for dog lovers for sale, in pictures – Guardian [36]
Comment and opinion
Trapped in the hell of social comparison – Noahpinion [37]
Killing the goose that lays the golden egg – Behavioural Investment [38]
Why portfolio diversification is about more than just correlations – Morningstar [39]
This is why leasehold reform should be a priority – News on the Block [40]
Cullen Roche discusses Your Perfect Portfolio [41] [Podcast] – Odd Lots [42]
Why are some BTL landlords thriving while others sell up? – Landlord Zone [43]
Gold isn’t special – Humble Dollar [44]
Cheap direct debits for bank switching and rewards – Be Clever With Your Cash [45]
Vanguard talks inertia and behavioural finance [Podcast/transcript] – Morningstar [46]
Tesla is a value stock? The wacky world of factor ETFs [US but relevant] – WSJ [47]
Market expectations mini-special
Expensive is only half the story – Excess Returns [48]
What equity earnings explain and what they don’t [Research] – CFA Institute [49]
A simple metric to predict future stock market returns – Morningstar [50]
When a 40x P/E ratio is a bargain – Flyover Stocks [51]
Naughty corner: Active antics
The reemergence of non-US markets – Enterprising Investor [52]
Consistent fund performance is overrated – Morningstar [53]
Is Japan ‘normal’ again? – The Overshoot [54]
FOMO and the optimal portfolio size – Klement on Investing [55]
Rules matter more than insight – The Financial Pen [56]
Kindle book bargains
How to Own the World by Andrew Craig – £0.99 on Kindle [57]
Zero to One: Notes on Startups by Peter Thiel – £0.99 on Kindle [58]
The Four-hour Work Week by Tim Ferriss – £0.99 on Kindle [59]
How to Break Up With Fast Fashion by Lauren Bravo – £0.99 on Kindle [60]
Environmental factors
Climate stripes updated to show 2025 as third-hottest year ever – BBC [61]
Flying foxes die in their thousands in extreme Australian heatwave – Guardian [62]
This Brighton-based ecologist wants to see 6,000 species in a year – BBC [63]
Solar grazing: a win for sheep farmers or just a PR exercise? – Guardian [64]
Does adding “please” and “thank you” to ChatGPT prompts waste energy? – The Conversation [65]
Robot overlord roundup
Claude Code: move over ChatGPT – The Atlantic [66] [h/t Abnormal Returns [67]]
Apple is partnering with Google to upgrade Siri – Spyglass [68]
No, entry-level jobs aren’t being lost to AI (yet) – Agglomerations [69]
Google removes ‘dangerous and alarming’ AI summaries from search results – Guardian [70]
McKinsey CEO says firm has 60,000 employees, of which 25,000 are AI agents – B.I. [71]
The rise of AI is throttling website traffic – Press Gazette [72]
Not at the dinner table
Statement on the Federal Reserve – Bernanke, Yellen, Geithner, Greenspan, and more [73]
Stewart Lee: Naked imperialistic wars aren’t what they used to be – The Nerve [74]
EU wants ‘Farage clause’ in Brexit reset talks with UK – Guardian [75]
Enforcement regime – Phenomenal World [76]
The world is one bad decision away from a silicon ice age – The Register [77]
Proposed new Ukip logo compared to iron cross used by Nazi regime – Guardian [78]
(Apparently) ending extreme global poverty would cost 0.3% of GDP [Research] – SSRN [79]
Off our beat
Divorce is awesome – Never Enough [80]
Iran’s ultimate banned book – The Dial [81]
What’s behind the phenomenon of ‘gamer brain’? – Guardian [82]
How big tech killed literary culture – UnHerd [83]
The surprisingly long life of the vacuum tube – Construction Physics [84]
Oil: Venezuela’s excrement – Uncharted Territories [85]
The “Are you dead?” app is having a moment in China – BBC [86]
Ten years on, still remembering Alan Rickman – Guardian one [87], two [88], and three [89]
And finally…
“A technique that works repeatedly is to wait until the prevailing opinion about a certain industry is that things have gone from bad to worse, and then buy shares in the strongest companies in the group.”
– Peter Lynch, Beating the Street [90]
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- i.e. After backing out what the Bank owns due to quantitative easing.[↩ [98]]