Financial advisers have seen a surge in enquiries from clients seeking guidance on bond investments ahead of Wednesday’s economic update, they told The i Paper.
But how do bonds work? And how could the Spring Statement affect those who have invested in them or are exposed to them via their pension pot.
Bonds are essentially IOUs. When you invest in them, you are lending money in return for interest payments in the future – one common type is a gilt, which is an investment on government debt.
Laith Khalaf, head of investment analysis at AJ Bell, said: “What percentage of people’s pension pots are invested in bonds varies massively from scheme to scheme and often depends on the age of the individual.
Despite being seen as relatively safe, fiscal events like the Spring Statement and Autumn Budget can have a large impact on the value of these bonds and the yields the provide – with these yields being the return an investor gets for their money.
What has happened to bonds recently?
In recent months, UK Government bond yields have experienced notable fluctuations.
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These movements reflect investor concerns over fiscal policies, inflationary pressures, and global economic uncertainties.
On Thursday, the Bank of England decided to hold the bank rate at 4.5 per cent, driven by global and domestic uncertainties, such as Donald Trump’s impending trade tariffs and the UK Government’s upcoming employer tax rise.
However, Richard Carter, head of fixed interest at Quilter Cheviot, said the decision to hold the base rate at 4.5 per cent was anticipated so had minimal immediate impact on the bond market.
The Office for Budget Responsibility (OBR) – the government’s watchdog – is likely to lower its forecast for economic growth in 2025.
He added: “Such announcements could lead to higher bond yields and lower prices.”
He said: “We are seeing heightened interest from investors in bonds ahead of the Spring Statement, with many looking to understand how potential fiscal changes could impact the fixed-income landscape.”
He added: “Given the current environment – where yields remain historically high and geopolitical risks continue to influence markets – investors are particularly cautious about positioning within their bond portfolios”.
What should you do if you have already invested in bonds?
If investors have invested in bonds and want to keep them for the regular income they provide, then they don’t need to take any action.
He added: “Retail investors do not tend to take short-term trading decisions based on upcoming statements.”
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He said: “Bond prices may be higher or lower after the Spring Statement, and we simply can’t predict that at the moment. If you sell your bonds, you do need to consider the costs of doing so and what you do with the money instead.”
“While spreads in some riskier parts of the market are tight, the broad fixed-income space remains an attractive diversifier, particularly for those looking to mitigate equity risk in their portfolios.”
Should I invest in bonds now?
But he warned not to trade around events like the Spring Statement, as “you’re just as likely to lose out as pick up a bit more yield”.
“On that front bonds can play a role as diversification alongside shareholdings and provide an income stream for those who need it too.”
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