Is buying UK gilts worth doing now that interest rates are rising? Should I buy in higher rates?

Good question.

No, I don’t like the idea of buying UK gilts which pay such a low rate of return. That “safety” that you get and passive income is so meager it really does not make sense except for bond traders that want to gamble on interest rate movements.

Interest rates are likely to go higher in the UK so you would be in worse shape if you bought long term UK gilts. Instead of UK gilts you should look at private company corporate income bonds that are not denominated in GBP.

The Bank of England has raised interest rates 8 times this year in an effort to shield the UK economy from high levels of inflation.

The inflation is quite high now in the UK. For example, the Financial Times did an analysis that reported a bowl of tomato(e) pasta had increased by a staggering 60 percent since last month. The price of cooking oil was up 65% also.

Jeremy Hunt on November 17th is scheduled to provide his five-year plan to decrease debt as a percentage of GDP in the UK.
One component of the plan that may provide 5 billion is to increase net immigration into the UK. This may introduce a number of new problems for the already suffering UK but it likely will be suggested.

Other areas to reduce the deficit would be things like reducing benefits and pensions, reducing public spending in the next parliament, imposing an energy windfall tax, lowering overseas aid, cutting capital expenditure, increasing VAT, among numerous other options.

Over the past month and a half a lot of upheaval has been present in the market. The economic challenges are significant. The out of control inflation has created a new “cost of living crisis”. Raising interest rates to try and reduce inflation and stop the GBP from continuing to weaken against the USD will result in more deterioration in fiscal outlook.

Many FTSE-listed companies are in a position where they now must issue profit warnings since the costs of doing business have risen so much.

The higher energy costs as a result of Russia’s invasion of Ukraine coupled with higher interest rates are what are causing these profit warnings. There will be more profit warnings coming in the near future. Russia’s invasion of Ukraine has also exacerbated the already high inflation by pushing up the costs of gas, wheat and oil.

If you are in the situation where you have £ and normally would want to purchase Gilts but are looking at all of this inflation and the £ endlessly losing value against the $, then Alamo Mortgage Holdings, Ltd has a solution for you.

Alamo Mortgage Holdings offers corporate income bonds that in addition to paying hundreds of basis points more passive income than UK Gilts also give institutional and accredited investors the option of easily converting out of GBP to USD.

If your goal is passive income the best way is to look at the bonds of companies that are not publicly traded (as they often pay higher returns) or to look at investing as a limited partner in a multifamily apartment community. But you need to focus on collateral backing the bond.

If you would like to learn more about investing for passive income, just register for my free weekly training at the link below:

https://www.meetup.com/benjamin-z-millers-investor-networking-group/

I hope that helps and good luck with your investing!

Benjamin Z Miller
www.benjaminzmiller.com

Benjamin Z Miller
ben@benjaminzmiller.com
1-817-203-4160
www.benjaminzmiller.com

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