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The UK’s biggest long-term savings and retirement business has started buying gilts for the first time in two years despite a renewed bout of bond market turmoil.
Phoenix Group, which manages £269bn on behalf of 12 million customers, said it now believed gilts offered “good value” relative to other assets and had started moving money into British government debt.
Phoenix, which owns insurer Standard Life, started selling gilts at the beginning of 2022, dumping billions of pounds of UK assets amid concerns that the Bank of England had been consistently behind the curve on inflation.
However, Mike Eakins, the company’s chief investment officer, said Phoenix was now more confident that UK interest rates had peaked after Threadneedle Street held borrowing costs at 5.25pc in September.
The decision to hold rates unchanged for the first time since 2021 came after official figures showed inflation eased to 6.7pc in August.
Mr Eakins said Phoenix was now “rotating out of non-GBP credit into gilts”.
It comes amid a renewed sell-off in global government debt that has seen UK yields rise above their mini-Budget levels. Long-term borrowing costs rose to their highest in 25 years last week.
Mr Eakins said: “Yields may still move higher despite the Bank of England pause, but we expect that the majority of rate rises from the central bank are now done.”
Blackrock, the world’s biggest money manager, has also started buying more gilts.
Vivek Paul, senior strategist at the Blackrock Investment Institute, said it had upgraded its view of UK bonds “just a few weeks ago” and was telling clients to snap up government debt over the next 12 months.
Soaring gilt returns have lured some of the biggest funds into snapping up UK debt in recent months as inflation has stabilised.
Nest, Britain’s largest pension scheme, recently said it would also start buying gilts for the first time in years amid signs that inflation is coming down.
Andrew Balls, chief investment officer for global fixed income at Pimco, said gilts were “pretty attractive” relative to US Treasuries.
The yield on a 10-year gilt stood at 4.57pc on Friday, compared to 4.78pc for a 10-year Treasury. While the US notes pay a higher rate of return, investors are less convinced that inflation there is under control and are therefore concerned that higher interest rates will eat into their profits.
Mr Balls said: “If you’re getting gilt yields at 4.5pc, this still looks pretty attractive given the range of risks to the outlook.”
Optimism about inflation in the UK stands in contrast to growing concerns about price rises in the US.