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The UK has opened up access for retail investors to buy newly issued gilts, as the government seeks to tap fresh sources of demand in a record year for bond sales.

Winterflood Securities, a government-appointed dealer for UK debt, is allowing individual investors for the first time to buy government bonds in the primary market through major retail investment platforms. 

Private investors have for years been able to buy government bonds on the secondary market, but new bond issues — which tend to be launched at slightly discounted prices through auctions — have generally been limited to institutional investors.

“We think this is the best way to provide an institutional level of access to a retail investor,” said Andrew Stancliffe, head of execution services at Winterflood Securities, adding that investors would not be charged a transaction fee during the sales process. 

The unlocking of retail access to gilt sales comes as the UK faces daunting borrowing needs, with the government’s gross financing requirement estimated at about £277bn for the 2024-25, 16 per cent higher than the current year.

The government has been exploring the “potential for retail investors to contribute more significantly to meeting the overall financing requirement”, according to the minutes of an annual meeting between the UK’s Debt Management Office, bond dealers and investors published last month.

“We very much welcome this collaborative, market-led initiative,” said Sir Robert Stheeman, chief executive of the DMO. “We value the importance of having as diverse an investor base as possible and this initiative will provide retail investors with an additional opportunity to access gilts.”

The move brings the UK closer in line with other major bond markets, which already sell bonds directly to the public, such as the US Treasury, which sold $580bn in bills and $20bn in bonds and Treasury inflation-protected securities last year.

Countries in the eurozone have also increasingly turned directly to their own citizens to fund borrowing, with Italy, Belgium and Portugal issuing about €77bn worth of bonds directly to households last year, up from €26bn the previous year.

Participation in gilt auctions will initially be available through Hargreaves Lansdown and Interactive Investor, two of the UK’s largest investment platforms with a combined £196bn of assets under administration. 

The platforms have started accepting orders for a seven-year gilt that will be issued on Wednesday 28 February with a coupon of 4 per cent. Retail investors will be given the average price of the auction and will not have to pay any dealing fees, unlike for gilts bought through platforms in the secondary market. 

The bond can be held within a tax-efficient individual savings account and a self-invested personal pension. Neither was possible under the debt management office’s previous retail auction facility, which has been suspended since the coronavirus pandemic, and was only available to the DMO’s approved group of investors.

“We think there will be significant demand,” said Tim Jacobs, head of primary markets at Hargreaves Lansdown. “It’s another example of retail investors being taken seriously — they are finally getting a seat at the table.” 

The Financial Conduct Authority is currently looking at improving equity and fixed income retail participation as part of its efforts to improve the functioning of capital markets, while the upcoming sale of the government’s stake in NatWest is expected to include a retail tranche. 

Stancliffe said retail investors will initially only be able to participate in auctions of new gilts, but didn’t rule out access to “taps” — auctions to top up existing bonds — in the future. 

The opening of primary market retail gilt access comes as private investors have piled into gilts trading in the secondary market over the past 18 months as investors have rushed to scoop up higher yields.  

Hargreaves Lansdown said its gilt trading volumes have quadrupled over the past year, with more than 25,000 of its clients now holding one of the 57 gilts available on its platform.

Benchmark 10-year UK government bonds currently yield 4.1 per cent, having remained below 2 per cent between 2016 and 2022 before the Bank of England was forced to dramatically increase interest rates to cool surging inflation.

National Savings and Investments, the other channel through which private savers can directly lend money to the government, offers an interest rate of 3.65 per cent on its savings accounts. However, NS&I does not allow individual investors to buy tradable assets like gilts.

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