Bond Watch: what to do when TN25 matures next week

The most popular gilt on the ii platform matures next week, on Friday 31 January. 

UNITED KINGDOM 0.25 31/01/2025 (LSE:TN25) will redeem at £100 per gilt held, returning cash to customers’ accounts alongside a final coupon payment.  

The timing is good for investors looking to reinvest this cash into short-term gilts, as yields have risen since the summer. 

Most two-year bonds now pay around 4.4% on an annualised basis compared with just over 3.5% in August. 

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However, lower-coupon bonds are a bit more expensive (therefore yielding slightly less than market rates) due to the tax break they offer.  

Capital gains on gilts are tax-free, so the difference between the £100 redemption value of a gilt and the purchase price is tax-free if held in a General Investment Account – this makes gilts a very tax-efficient investment if they are held outside an ISA or SIPP and bought at a discount to their redemption value. However, these discounted bonds generally offer slightly lower yields because of increased demand for them. 

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So, what gilts should investors be looking at if they are looking to hold to maturity, but not lock up their cash for too long?   

Once TN25 matures, these gilts stand out due to their maturity dates and low coupons, meaning that they trade below their issue value. Most of the return on these gilts will come from capital gains rather than coupons.  

• UNITED KINGDOM 0.125 30/01/2026 (T26)– Maturing on 30 January 2026, this gilt has a 0.125% coupon and costs around £96.30 to buy. Its yield-to-maturity (the expected annualised return if bought today and held until maturity) is 3.89%, according to Tradeweb. 
• UNITED KINGDOM 0.125 31/01/2028 (TN28) – Matures on 31 January 2028, this gilt also has a 0.125% coupon and trades at £88.98 per gilt. The yield is 4.05%.   
• UNITED KINGDOM 0.25 31/07/2031   (TG31)– Matures on 31 July 2031, this gilt has a 0.25% coupon and trades at £77.30. It yields 4.28%.   
• UNITED KINGDOM 0.375 22/10/2026 (T26A) – Maturing on 22 October 2026, this gilt pays a 0.375% coupon and trades at £93.77. The YTM is 4.11%. 

For investors looking for greater coupon income, rather than just relying on capital gains for returns, these gilts are worth looking at.  

They trade around their issue value, meaning that the coupon stated is similar to the distribution (income) yield on the gilts.  

• 4½% Treasury Gilt 2034 (LSE:TR34)- Costing £99.27 to buy, the distribution yield on this gilt is similar to the 4.5% coupon, at 4.54%. The yield to maturity is 4.57% and the gilt matures in 2034.  
• 4½% Treasury Gilt 2042 (LSE:T42) - Similarly, this bond trades a little below its issue value, offering a distribution yield of 4.81% and a yield to maturity of 5%. It matures in 2042, meaning that the price of the bond could be volatile due to its long maturity date. However, for those looking to lock in an income for more than 15 years by holding the bond to maturity, swings in the gilt price can be ignored as the coupon will be consistent over the life of the bond.  
• 4¾% Treasury Gilt 2030 (LSE:TR30) - Costing £1.02 to buy, this gilt’s distribution yield is 4.65%. The yield to maturity is 4.29%.