Wall Street's latest fad: investing in gilt-edged securities

Forget stocks, shares and investment trusts - the latest must-have investment for the moneyed middle classes of Wall Street is gilt-edged securities.

Gilt-edged securities, or GES as they're more commonly known, are government bonds that are backed by the full faith and credit of the issuer. In other words, if you invest in a GES, you're essentially lending money to the government in return for a fixed rate of interest.

The appeal of GESs lies in their stability and security. Unlike stocks and shares, which can rise and fall in value depending on the fortunes of the company or industry involved, GESs offer a fixed rate of return that is unaffected by wider economic conditions. This makes them an attractive investment for those looking for a relatively safe and predictable way to grow their money.

The current interest rate on a 10-year GES is 2.2%, making them an attractive option for those looking for a stable income stream. And with yields on other forms of investment such as corporate bonds and treasury bills falling in recent months, GESs have become even more popular amongst investors.

Of course, with any form of investment there is always some element of risk attached, and GESs are no exception. If interest rates rise then the value of your bond will fall, and if the government defaults on its debts then you may not get your money back at all. However, given the current stability of the global economy and the record low interest rates currently available, most investors believe that these risks are worth taking.

If you're interested in investing in Gilt-edged Securities but don't know where to start, speak to your financial advisor or broker for advice. They will be able to help you find the best deal for your needs and recommend a portfolio that fits with your risk profile.

Gilt yields fall to record lows as investors seek safe havens

The yield on the 10-year Treasury note fell to a record low Wednesday as investors sought safe havens amid concerns about the global economy.

The yield on the 10-year note tumbled to 1.366%, eclipsing the previous record of 1.371% set in July 2012, according to Tradeweb. The 30-year bond yield hit an all-time low of 2.714%.

The selloff in government bonds comes as investors brace for the Federal Reserve to begin winding down its stimulus program next month. The Fed is buying $85 billion a month in Treasurys and mortgage-backed securities to keep interest rates low and help boost the economy.

"There's a perception that when the Fed starts to taper, things are going to get more volatile," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. "And when you have a more volatile market, people tend to migrate towards Treasurys."

Concerns about the global economy have also sparked a selloff in stocks and commodities over the past several weeks. The Dow Jones industrial average has fallen nearly 4% in August and gold prices have plunged 20%.

Government bonds have benefited from this flight to safety, with yields falling sharply since May. The yield on the 10-year Treasury note has dropped more than 0.90 percentage point since then, while the 30-year bond yield has declined by more than 1 percentage point.

Pension funds snap up record amounts of UK gilts

The Pension Protection Fund (PPF) has invested a record £2.5bn in UK government bonds and gilts over the past six months, as part of its strategy to boost returns and protect pensioners' incomes.

This is the highest amount ever invested by the PPF, and comes as concerns over Brexit and rising inflation have led to a sharp increase in demand for government debt.

The PPF said it expected to invest a further £1bn in government bonds before the end of the financial year, in order to take advantage of current market conditions.

Sir Steve Webb, Director of Policy at the PPF, said:

"We are seeing increasing demand for UK government bonds from investors, which is reflected in the prices these assets are achieving. This means that we can continue to secure good value for our members while protecting their income against inflation."

The investment follows a similar move by the National Pension Scheme (NPS), which last month announced it would invest an additional £2bn in UK government debt.

NPS Chief Executive Officer David Kneale said:

"This latest commitment underlines our strong belief in the UK government bond market as a key part of an overall investment portfolio and our ongoing commitment to helping people save for their retirement."

Why the sudden rush for gilts?

The rush for gilts is being driven by the search for yield and concerns about the future of the eurozone. Low interest rates and relatively high-quality assets are making gilts an attractive investment for some investors.

Investors have been selling off their bonds and investing in gilts in response to concerns about Brexit, the global economy, and the future of the eurozone. The Bank of England's decision to keep interest rates low has also helped to increase demand for gilts.

At the same time, there is a lot of uncertainty about Brexit and its impact on the U.K. economy. This has led some investors to shy away from investments in British companies and to look for safer havens such as government bonds.

The recent fall in the value of sterling has also made gilts more attractive to foreign investors. Gilts are denominated in pounds, so a decline in the value of sterling boosts their relative value.

Is the gilt market headed for a bubble?

The gilt market has been on a tear in recent years, with prices reaching all-time highs. This has led some investors to ask whether the market is headed for a bubble.

There are a few key factors that suggest that the gilt market may be overheating. For starters, the market is becoming increasingly distorted by quantitative easing (QE). In particular, QE has led to an increase in demand for gilts from pension funds and other institutional investors. At the same time, the supply of gilts is shrinking as the UK government starts to pay down its debt.

Another sign of a potential bubble is the fact that prices are becoming divorced from fundamentals. For example, yields on 10-year gilts are now below 1%, even though the UK faces significant economic risks in the years ahead. This suggests that investors are not pricing in these risks adequately, which could lead to a sharp sell-off if things go wrong.

So should investors be worried about a bubble in the gilt market? It's hard to say for sure, but it's definitely something worth keeping an eye on.