Bond Watch: ii unlocks access to UK Treasury Bills

Welcome to interactive investor’s ‘Bond Watch’ series, covering the latest market and economic news – as well as analysis – that is relevant to bond investors.           

Our goal is to make the notoriously complicated world of bond investing simpler, by analysing the week’s most important news and distilling it into a short, useful and accessible article for DIY investors.              

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Another way to generate a safe return

Issued by the UK’s Debt Management Office, UK Treasury Bills (T-Bills) give investors a fixed return, backed by the UK government.

They are “zero coupon” discount notes, with the investment returns created at the point the T-Bill matures, rather than via any coupon payments, unlike gilts. The investment return comes solely from the difference between the price the government sells to investors at (less than £100) and the redemption price the government pays back (£100).

Annualised yields currently hover just above 5%, therefore delivering an inflation-beating return.

UK Treasury Bills are not new, in fact they have been around since 1877, you just might not have heard of them as they were previously the preserve of large investors.

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But partnering with stockbroker PrimaryBid, ii customers are now able to participate in selected UK T-Bill tenders.

One key advantage of T-Bills is their short-term maturity and frequency of issuance, versus gilts which have a longer-term investment profile and fewer offerings. T-Bills typically mature in one, three, and six-month periods.

Read our guide on everything you need to know about UK Treasury Bills and how they differ from gilts.

Will the Bank of England cut rates next week?

On Thursday 1 August, the Bank of England could deliver its first rate cut since early 2020 when the pandemic shut down economies.

The inflation rate for June was 2%, the same figure as in May, which is bang on the Bank of England’s target.

This means that traders are betting that the central bank could deliver a 0.25 percentage point cut to interest rates, taking them down to 5%.

However, the most likely outcome is no change in interest rates, at a 65% probability, according to recent data from the London Stock Exchange Group.

Investors withdraw money from bond funds

In June, investors took nearly £2 billion out of UK-domiciled fixed-income funds, according to fund data group Morningstar. This takes total net outflows for 2024 to £5.8 billion.

This comes despite positive returns this year for bond funds, with the typical sterling corporate bond fund returning 1.3%, sterling strategic bond fund returning 2.3%, and sterling high-yield fund returning 4.4%.

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Morningstar also found that active versus passive flows divergence goes on, with passive funds recording net inflows for June, while active strategies saw further redemptions.

Two fund sectors attracting cash this year are global large-cap shares and US shares. In contrast, funds investing in the UK are suffering heavy redemptions.