The End of the UK's 'Gilt Cult': Citigroup Strategists Weigh In
The recent decline in UK bond prices may signal the end of the "gilt cult" among the country's pension funds, Citigroup Inc. strategists said.
The recent rout in UK bond markets may bring an end to a “gilt cult” among the country’s pension funds, Citigroup Inc. strategists said. This could be good news for savers and investors who have been holding out for higher yields.
This paragraph discusses the potential implications of new Prime Minister Liz Truss's tax-cut policy. According to the strategists mentioned, this policy could lead to a decrease in the value of gilts (a type of bond). This would be a problem for investors who have been using gilts to hedge against interest-rate and inflation risk. The strategists say that this is a "much-needed wake-up call" for these investors.
It is clear that pension funds have been increasingly turning to gilts in order to meet their long-term liabilities. However, Citi believes that UK stocks may offer a better value proposition going forward. In particular, they offer some protection against future inflation. As such, it is possible that pension funds will begin to shift back toward UK stocks in the future.
It is possible that a new equity cult will emerge from the ashes of the current one. This new group will be more focused on creating and preserving wealth, rather than simply acquiring it.
The UK's FTSE 100 index has slumped since Chancellor Kwasi Kwarteng delivered his "mini-budget" on Sept. 23, with an index tracking firms that generate most of their sales in Britain falling 10% through Friday's close. This is a worrying sign for the UK economy, which is heavily reliant on exports.
Citi strategists believe that UK companies are faring well in the face of global market volatility. They are particularly bullish on companies with large overseas revenues, which they believe are trading at a discount to their peers. They recommend AstraZeneca, Unilever, and Vodafone as defensive plays in this market.
I believe that BlackRock Inc.'s view on the UK economy is overly pessimistic. While fiscal credibility is certainly a concern, I believe that the UK has the potential to rebound strongly in the coming years. I would recommend investing in UK equities and gilts as the country's economy improves.
The UK's decision to scrap plans to cut taxes for the highest earners is a positive step, in our opinion. It shows that the government is willing to listen to public opinion and make decisions that are in the best interests of the country as a whole. This is a positive sign for the future of the UK economy and we believe that it will help to restore confidence in the government's ability to make sound decisions.