- Gilts are fixed interest securities issued by the UK government and therefore guaranteed by the taxpayer. Gilts and cash are the only two major asset classes that have weathered the financial storms.
- We consider certain types of gilts to be the safest of investments in these deflationary times.
- The increase in new gilt issues to fund the ballooning the public sector borrowing requirement, has put downward pressure on gilt prices, but we believe that this will be offset by a wall of money that is likely to hit the gilt market soon.
- The Bank of England’s (BoE) policy of ‘quantitive easing,’ is having a positive effect on gilt prices now that it is spending its £150bn budget on gilts and other securities, in a bid to boost the money supply. With this policy the BoE plans to force the price of gilts up. Higher gilt prices reduces gilt yields (interest) enabling the government to borrow more cheaply as it can offer lower interest rates on future gilt issues.
- We believe that a ‘bubble’ in gilts is likely to occur when the base rate and stock markets have fallen to their lowest points and enough private and institutional investors acknowledge that this economic crisis is much more than a short term ‘correction’ and that we are in fact witnessing the collapse of the ‘fractional reserve’ banking system and all the ‘towers of Babel’ that have been built around it.
- If/when this gilt bubble occurs our plan for clients invested in our ‘Safety First Strategy’ is to sell their gilt holdings at what we judge to be the top of the market and then buy them back again once the price has fallen to a sustainable level. In this way income will be boosted - in absolute terms - and clients will also benefit from an increase in their wealth. The directors of K A LINCOLN > INVESTMENTS have invested all of their own money in gilts via the’ Safety First Strategy’.
- Gilts provide a guaranteed level of income – up to 2055 - with easy no penalty access to your money.
- Gilts provide tax free capital growth potential because they are the only investment not subject to Capital Gains Tax.
- Gilts benefit from an unlimited guarantee of security - provided by the taxpayer - against default. With most cash deposit account - except National Savings and Northern Rock - the
- Financial Services Compensation Scheme limit is £50,000 per person, per institution.
- In summary our prognosis for this asset class is extremely positive because taking everything into account we do not know where income seekers can get a better deal.
NB: Even though gilts are one of the safest investments they are not completely risk free. Therefore we strongly advise you to visit our ‘What are Gilts’ page for more information.
15/02/2009
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