What you need to know about gilts and why markets freaked out so much it toppled the Chancellor

This is Money Podcast

This is Money

Business News, Business, Investing, News

4.1 • 650 Ratings

🗓️ 14 October 2022

⏱️ 54 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

When gilts hit the headlines it’s a clear sign that trouble has not only been brewing but has been unleashed.

Government bond yields only tend to break through into the mainstream when things aren’t going well and they have been firmly in the spotlight since Kwasi Kwarteng’s ill-fated mini-budget.

But what is a gilt, why does its yield matter, what’s that got to do with prices and why do we worry about such things?

On this podcast, Georgie Frost, Lee Boyce and Simon Lambert, take a step back from the maelstrom to explain gilts, why investors worry about government bonds, what’s causing ructions in the pensions industry and what this all means for normal people.

Chancellor Kwarteng has now departed – in fact, news of his imminent exit from the job while the team were recording the podcast, triggering a breaking news style interruption – but will Chancellor Jeremy Hunt fare any better (and last longer)?

The team discuss why the mortgage market is key to the answer to that and also look at what first-time buyers should do in this scenario.

There are some for whom the current rapid rate rises aren’t bad news though and that is savers. We now have a top savings rate above 5 per cent for the first time in many years, but is it worth taking?

It requires locking in for five years, but that’s the sort of return knocking on what could reasonably be expected from the stock market, where you also have to take the risk of losing money.

And finally, investors are hunkering down at the moment, but when share prices fall the stock market is on sale – and if you look at some investment trusts there is a double sale going on, as discounts have widened to 13 per cent on average.

Should you be greedy when others are fearful, as Warren Buffett is often quoted as saying, or exercise some caution rather than having your head turned by knockdown prices?

Transcript

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0:00.0	Welcome to This Is Money Podcast. I'm Georgie Frost and joining me and editor Simon Lambert today is Deputy Editor Lee Voice.
0:08.7	And coming up, GILTS are dominating the headlines. The crisis seems to be impacting everything from our pensions to mortgages, the government's economic plans and everything in between, especially the country's reputation.
0:19.8	The Bank of England's got involved again,
0:21.6	but what on earth of guilt? What is really going on? Also today, the first savings rate
0:27.7	offering 5% for more than a decade has landed. We ask, is it a bad time to buy your first home?
0:33.7	And investment trusts are trading at their biggest average discount in years.
0:38.0	Is it a good opportunity to bag a bargain?
0:40.6	Don't forget you to step to date with all the latest breaking money news,
0:43.5	just go to this ismoney.co.uk or download the app.
0:47.7	Market updates and conversations around the financial world don't have to be boring.
0:52.1	The Digest Invest and Invest Podcast by-Toro is a great way to tune
0:55.4	into what's happening in a fun and easily digestible format. Discover the Digest and Invest podcast
1:01.0	etorro.com forward slash academy forward slash podcasts. But first, guilt yields continue to surge this week
1:07.2	as the Bank of England made its biggest intervention in markets yet. The turmoil in the gilt market has been prompted by the Chancellor's mini budget,
1:14.1	which spooked investors last month and traders have been selling guilts ever since.
1:18.4	A lot of talk about pensions, plenty about mortgages.
1:21.0	But why? What on earth are we talking about?
1:24.9	Simon, now is a good opportunity, I think, to go back to basics
1:30.2	101. What a heck of guilts? Why they're making the news? Guilts are IOUs from the British
1:39.8	government. They are UK government bonds. That's the name that we give to them. And it is due to their
1:45.8	previous guilt edged status. And the fact that at one point they did come with a guilt edge.
1:53.0	Basically, what happens is the government says, we would like to raise some money in order to do some
	...

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