£150bn wiped off the value of Gilts since the start of 2022,

"Gilts have had a rough 2022 so far but this should be put into context against the highest inflation rate since 1982. The Bank of England has to respond by raising base rates. And yields have risen from a very low base, as interest rates were cut in the pandemic. A torrid four months is not enough to pronounce the death of the 60/40 portfolio solution, which has been working for decades. This is a unique set of circumstances just as the pandemic was an unprecedented and unexpected event. The Bank of England believes inflation is being driven by external factors and sees it as transitory and falling over the next two to three years. Higher prices will hurt demand as we have seen in the UK consumer confidence survey, which has hit the lowest level since 1974. Inevitably, recession looms as consumers reign in spending, and higher interest rates dampen demand. Bonds then start to look attractive again, especially the long end, as the yield curve goes negative and the market expects interest rate cuts in the future."

"We have long been concerned about Gilts and other bonds because when interest rates were at zero, there was only one direction of travel possible. We have been raising this issue with our clients for months and moved many out of the classic 60/40 portfolio for this very reason. The real issue is still yet to be realised and will be felt by people who have "lifestyle" pensions, which is how the majority of employer pensions are set-up today. These pensions automatically "de-risk" into Gilts and cash as each person approaches their retirement age because, according to the same theory as the 60/40 portfolio, it's meant to be "safer". These people now face significant capital losses on their supposed "safer" pensions. This is a hidden time bomb within the pensions industry that is just waiting to blow up."

"The bond market has taken an absolute pasting over the past 6 months. Particularly Gilts with long durations, which are more sensitive to rising interest rates. However, this is now past performance and investors shouldn't assume this trend will continue. In fact, with considerable volatility in the stock market and talk of an imminent recession, the case for a balanced portfolio is as strong as ever."

"Most long-term investors will have a well-diversified portfolio consisting of various asset classes including shares and bonds. If you are over-exposed to bonds at the moment you will be seeing a drop in your portfolio, much the same as you would be if you are over exposed to shares. The important thing to remember is that you are investing for the long term and that any short-term volatility is the trade off people have to accept in return for the long term gains."

"Whilst global equity markets have been a total car crash of late, the supposedly safe have asset class of U.K. Government Gilts have not fared any better. Indeed, we have seen the biggest fall in the Gilt market in 30-years, creating a difficult investment backdrop for pension funds, charities and individual investors. Whilst the U.K. Treasury Gilts market is considered to be a “safe haven” asset class, it does fluctuate due to a variety of factors such as rising interest rates and inflation, supply and demand issues, a change in credit ratings, and how near a specific Gilt might be to its maturity date. Clearly, at the moment U.K. inflation is rising fast and has recently hit 9%, which is a 40-year high. This has created a negative environment for Gilts, along with the Bank of England’s aggressive monetary policy tightening stance to try and tame the rise in the rate of inflation. Higher fuel and food prices, driven by the war in the Ukraine, are pushing up the cost of living and hitting households very hard. This is likely to see the rate of U.K. inflation increase even further, which is bad news for the Gilt market. Furthermore, economic and political considerations can also contribute towards a challenging and volatile time for Gilts."