There was another surge in demand for gilts from small private investors in the past month, with demand from retail investors reportedly big enough to impact prices.
The UK's largest investment platform, Hargreaves Lansdown, reported that net buys of UK government bonds was 63% higher in February compared to January, which was already a four-year record high.
This was the highest monthly trading value on direct gilts on the HL platform on record and the value of net purchases bought so far this year is almost nearly 60% of the total value traded throughout 2024.
HL clients holding UK government bonds are up 32% in number compared to this time a year ago.
A spokesman for rivals AJ Bell also said its platform continued to see money flow into gilts in February, having been the most popular investment in January.
Even though gilt yields - the interest rate paid by the government to holders - were lower than during the spike in January, they remained high enough to encourage investors to keep buying, said HL senior investment analyst Hal Cook.
He added that, "astonishingly", analysis of bond funds showed it was retail investor demand for gilts has been big enough to impact prices recently, noting that some fund managers had noted the higher demand for low coupon gilts, particularly in early February, was distorting market pricing.
"For fund managers to be talking about this, highlights the volume of these gilts that retail clients are buying, in a market that has historically been dominated by institutional investors."
AJ Bell analyst Dan Coatsworth said the biggest interest among customers on its platform was in low coupon, short-dated gilts.
"This suggests that investors were looking to make capital gains rather than buy them for income," he said.
Two factors
Record trading in February reflected two factors, said HL's Cook: an increase in the number of clients holding gilts in their portfolios and more clients also buying larger amounts.
The total amount invested in gilts on the platform at the end of February 2025 was around 50% higher than 12 months previously.
"Another big reason for the sharp increase in net buy in February is the reinvestment of the proceeds of a large gilt maturity at the end of January," said Cook, reflecting the relatively high yields that remain available.
"Their appeal is also increased for higher rate taxpayers if they buy ‘low coupon’ gilts given the capital gains tax benefits, particularly for investors who’ve maxed out their ISA allowances."
HL said it would expect demand to fall from the levels seen so far in 2025 come the end of the tax year, with ISA 'early bird' investors predicted to flock to equities and funds to make use of their tax allowances for 2025/26 ahead of investing in gilts.
Gilt yields are expected to remain elevated, Cook said, given the macroeconomic environment.
** Update: Adds details **