Extract from an article published in Investment Week By Patrick Harrington, Managing Director, OLIM Investment Managers.
In recent times, we have seen many UK investors turning to gilts, or government bonds, as safe haven assets while the sentiment in equities continues to remain low. The 6% 12/07/2028 gilt is of unusual interest to UK investors but not because it is trading particularly out of line with other gilts, offering as it does a redemption yield of just over 0.5%. Instead, the point of interest comes from its high nominal coupon. In fact, there is only one other gilt now remaining with a higher nominal coupon, the 8% 6/7/2021. Given 6% of 2028’s redemption yield is so low compared to its coupon and that it has over 8 years left to run, it is no surprise to learn that the bond is trading well over par, although the actual price of 148.1 is still quite eyebrow raising. At this price the gilt has a running income yield of just under 4.1%, similar to the 4.2% historic yield offered by the UK stock market as measured by the FTSE All Share Index, which is why this bond should make all investors sit up and take notice.