UK Gilts latest news March 2025

Our latest monthly commentary for investing in UK gilts for UK financial advisers. 
Includes:

• Latest gilts UK news
• Update on latest gilt yields
• Changes in Gilt yield curve
• Gilts auction results
• Gilts ETF flows

Investing in Gilts: key trends in the UK gilts market

Gilts are the name given to UK Government Bonds.  In our monthly commentary on the UK gilts market, we focus on three key aspects:

1. The near-term direct gilts yields and “ladder” for maturities under 5 years
2. Changes to the UK yield curve over all maturities and real yields
3. Supply/demand and ETF flows

Contact us to find out more about Direct Gilts portfolio solutions (for UK advisers)

Read the article explaining the tax advantages for higher and additional rate taxpayers

Watch the CISI-endorsed CPD webinar: deep dive on this topic on this topic (for UK advisers)

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Near-term direct gilts ladder

The near-term direct gilts ladder shows the yield to maturity and coupon rates and is available to our clients.

For the 0.125% Treasury Gilt 30-Jan-26 (T26), Yield to Maturity was 3.549% at end March 2025, compared to 3.524% at end February 2025.
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For UK advisers wanting the full gilts ladder including Gross Comparable Yield for higher and additional rate taxpayers, please contact us as this is only available to our clients.

Changes to the Yield Curve

The chart below shows changes to the UK yield curve over the last 3 and 12 months.
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Over the past three months, the 10-year Gilts yield increased from 4.57% to 4.68%, while the 2-year yield dropped from 4.39% to 4.20%. This divergence suggests that investors expect near-term rate cuts from the Bank of England, driving short-term yields lower, while longer-term concerns about sticky inflation and government borrowing have kept upward pressure on 10-year yields.

​Longer-dated gilt yields reflect the market’s view on the credibility of the UK governments borrowing and spending plans.

UK yield curve

Real yields

Real yields are a measure of whether bonds are preserving capital in inflation-adjusted terms, using a forward-looking measure of expected inflation.

We look at real yields which adjust the nominal yield for a 10-year Gilt by the 10 year Break-Even Inflation Rate (BEIR) which is a market-derived measure of inflation expectations ovr a given term.
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The nominal yield on 10-year UK government bonds has risen significantly from near-zero levels in early 2021. Having been persistently negative, prior to interest rate normalisation, real yields remain positive.

This means that after accounting for inflation expectations, investors continue to earn real returns on 10-year UK government bonds.

UK nominal vs real yields

DMO Auction Results

​From a supply/demand perspective, the UK DMO completed the following auctions last month with Bid-to-Cover ratio of 2.85% to 3.27x. with nearest term (2028 maturity) yield of 4.26% and longest term (2054 maturity) yield of 5.10%.  Yields are cited at Average Accepted Price (AAP) (see Notes).

Gilts ETF Flows

​From a flows perspective, UK Gilts ETFs experienced cumulative YTD flows of £140m, concentrated in longer-dated exposures.

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​Over the last 1 year, UK GIlts received flows of £3.12bn.

How different types of investor access the Gilts market

• Individual Investors: Near-term Direct Gilts are a tax-efficient alternative to cash deposits for higher and additional rate taxpayers.  This makes them an important instrument for UK financial advisers creating financial plans for their clients.  They can be bought or sold via a platform.
• ​Institutional Investors:  Gilts of different maturities are often used by pension schemes and annuity providers to match expected liabilities.
• Portfolio Managers: For platform-based portfolio managers running a Managed Portfolio Service (aka Model Portfolio Service), gilts index funds of different maturity buckets can be used to construct and adapt the bond-basket within an asset allocation for a model portfolio.  Gilts index funds price daily and can be bought or sold once a day (typically at noon) via  a platform and there is no secondary market.
• Fund Managers: For fund managers running an Investment Trust (IT), Open Ended Investment Company (OEIC) or Authorised Unit Trust (AUT) as a fund-of-funds or multi-asset fund, gilts ETFs (Exchange Traded Funds) track gilts index exposures of different maturity buckets can be used to construct and adapt the bond-basket within an asset allocation for a fund.  Gilts ETFs price continuously during London Stock Exchange market hours and can be bought or sold intraday via the exchange and there is an active secondary market.

What are the risks of investing in gilts

Gilts are the core UK "risk-free" asset from a counterparty perspective (and for capital markets theory).  They are considered risk-free from a counterparty perspective because the UK Government has paid interest on time and repaid capital on time on all the Bonds it has ever issused.

But whilst being deemed to have no counterparty risk, no investment is without investment risks.  The key investment risks relating to Gilts are:

1. Duration risk: the sensitivity of a Gilt to changes in interest rates.  Typically, the longer the maturity, the longer the duration and the more sensitive to a change in interest rates.  Gilts values move in the opposite direction to interest rates.
2. Inflation risk: the nominal value of a bond could lose its purchasing power in higher inflation regimes.  The higher the inflation, the lower the real (inflation-adjusted) value of a future interest or capital payment.
3. Reinvestment risk: investors may have to reinvest the proceeds from a gilt investment at a potentially lower available rate in the future.

Summary

Gilts are the core building block of a bond portfolio for UK-based investors with GBP-denominated portfolios.

Notes
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Yield at Average Accepted Price (AAP) is refers to the yield of an investment, calculated using the average price at which the investment was accepted, rather than the current market price. (Source: DMO)

Bid to Cover ratio is a key indicator of demand for government debt at auction, is calculated by dividing the total amount of bids received by the amount offered at a gilt auction. (Source: DMO)