Both believe that as inflation will fall in the UK, this should boost gilt prices in the near term.
Guillermo Felices, a global fixed income strategist at PGIM, says the problem for investors considering gilt exposure right now is that while gilt prices reflect a certain amount of additional interest rate rises, if inflation in the UK proves more persistent, then rates would have to rise by more than is currently priced by investors.
In that situation, he expects gilt prices would fall.
Benjamin Benson, head of investment research at AFH, says he likes gilts “more now than for a long time”, but he is very cognisant of the risks as outlined by Felices that rates rise at a quicker pace than is presently priced in.
In order to mitigate those risks, he is presently keeping his exposure to gilts relatively short dated, with the intention of increasing the duration as the inflation picture becomes clearer.
Bonds with a shooter date to maturity tend to perform better when investors biggest fear is inflation, and those with a long time to maturity do best when recession is the major concern.
David Thorpe is investment editor at FTAdviser
