A cyclical case for index-linked gilts

Article Abstract:

UK index-linked government securities (gilts) provided a return of only 6.4% in 1996, while equities provided 16.7%. Gilts have tended not to perform as well as the All-Share index, and have only performed better than the index in two of ten years to 1997. Index-linked gilts can do better than equities if inflation fears intensify while corporate profits are under pressure. This is likely to occur at a mature stage in the business cycle, and conditions for a good performance from index-linked gilts may occur in 1997.

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The Indian summer for index-linked gilts

Article Abstract:

UK index-linked government securities (gilts) have seen a drop in yields since Jun 1996. Real interest rates may rise in 1997 if demand for capital is not matched by a rise in savings. Yields for index-linked bonds tend to rise with economic growth and fall as growth slows. Demand for index linked gilts could rise as a result of a number of factors such as political uncertainty, a drop in the value of pound sterling and a UK consumer boom, which could lead to concern about inflation.

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