Retail investor interest in gilts ramped up through December and the first part of January, according to brokerages and investment platforms, as volatility in the market has taken hold.
Fears of stubborn inflation has led to expectations that central banks will slow down their pace of interest rate cuts this year, leaving base rates higher for longer.
This triggered a sell-off in government bonds in the UK and US, as investor appetite for holding this type of debt has fallen.
The sell-off prompted a surge in the yields on these bonds, which are effectively the interest rate paid out as a return to investors, meaning the UK government’s cost of borrowing has risen.
But despite the volatility, gilts have been the most popular investment among AJ Bell customers so far in 2025, the platform said.
Hargreaves Lansdown has also seen a bump in demand for gilts. Last week saw the highest number of gilt purchases by its clients since October. In December gilt purchases increased by a third from a year earlier.
“There are two sides to every story, and while the headlines are awash with news of a bond market sell-off, retail investors’ appetite for gilts is picking up,” says Dan Coatsworth, investment analyst at AJ Bell.
“The UK Treasury last week sold £4.25bn of five-year gilts (aka UK government bonds) at an average yield of 4.49%, with £12.74bn worth of bids received.
Read more: What the UK bond turmoil means for pensions
“AJ Bell saw strong demand from its customers in this auction and the gilts attracted more money on a net flow basis than any other investment on the platform so far this calendar year.”
UK and US government bond yields have recently risen because institutional investors have been selling the bonds, pulling down their price.
However, these bonds have now reached the point where they’re starting to look more attractive, particularly to retail investors looking to lock in yields above 4%.
“In the US, there is a widely held view among investment experts that yields on shorter-dated Treasuries (aka US government bonds) surpassing 5% might be the trigger point for swathes of investors to switch money from equities into government bonds,” said Coatsworth.
We’re not that far off, given the 10-year Treasury stands at 4.785% and the five-year note is at 4.6% at the time of writing. Longer-dated Treasuries have already surpassed the 5% level including 20-year and 30-year bonds.”
While bonds tend to be a long-term investment for their low-risk profile, those investing in the longest-term gilts are unlikely to hold in perpetuity.
