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Over the past 20 years, low yields have meant that bonds have proved unappealing to income-seeking investors. “Low yield” is another way to describe an asset that pays a relatively small amount of income.
More recently, however, a combination of factors has forced these investments, such as UK government bonds, into the spotlight. This is potentially of interest to investors looking to boost their income – retirees, for example, with spare cash to invest and who are willing to accept some risk.
We look at what’s brought about this change and ask whether bonds should feature in your investment plans.
What’s on this page?
Most of us are familiar with the idea of borrowing money. Asking for a loan from the bank to buy a car, for example.
Bonds are just another form of borrowing. Essentially, they are IOUs on a grand scale issued by both governments and companies worldwide.
Bonds have their own nomenclature. For example, UK government bonds are known as ‘gilts’. For centuries, the UK government has issued gilts when it wants to raise money from investors via the financial markets.
This might be for a variety of purposes, from financing the national debt to funding government expenditure and paying for infrastructure projects such as new roads and hospitals.
Find out more here about how to buy gilts and how they are taxed.
In the US, government bonds are called ‘Treasuries’. In the business world, companies looking to borrow money might do so by issuing a ‘corporate bond’.
Bonds are also referred to as fixed-interest securities. The bond market is enormous, easily on a par with the one for global stocks and shares. In 2026, the bond market was estimated to be worth about £110 trillion worldwide.
When you buy a bond, you’re effectively loaning money to a government or business for a certain length of time defined at the outset. At the end of that period, the bond matures and repays your initial loan. In addition, the borrower also pays you interest along the way.
Jason Hollands, managing director at Bestinvest by Evelyn Partners, says: “There are various types but, typically, a bond will mature at a known future date when investors receive back the amount originally loaned. In the meantime, the bondholder receives a fixed amount of interest, known as the ‘coupon’.
“The time horizons over which a bond will mature can vary greatly, ranging from one to 30 years. Once issued, conventional bonds are traded on the markets, with prices rising or falling, largely driven by a combination of expectations about inflation and interest rates, as well as sentiment.”
Bonds worldwide have come under renewed pressure as investors reassess inflation risks against a backdrop of geo-political uncertainty, rising energy prices, and concern about elevated government borrowing.
James Flintoft, head of investment solutions at AJ Bell, says: “The latest moves have been driven in part by escalating tensions between the US and Iran, which has increased concern about energy supply and the risk that inflation remains stickier than central banks would like.”
Hollands says: “Notably, the yield on gilts is the highest among the G7 group of leading economies. This is partly because the UK is seen as especially vulnerable to higher energy prices, but also because of uncertainty around the new Chancellor’s plans ahead of his first Budget later this October.
Rising bond yields are a challenge for governments, making it more expensive to borrow new money and refinance maturing debt. The markets are, in effect, demanding more reward given the potential for inflation to remain elevated and other risks.
But, as Hollands points out, there is a silver lining to this cloud. “What is clearly an unwelcome situation for governments, also presents an opportunity for investors who can take advantage of yields that are at levels last seen before the global financial crisis of 2008.
“At the time of writing [September 2026], gilts issued by the UK government with 10-years left until maturity are yielding 5.14%. The last time 10-year gilts were yielding over 5% was back in 2007.”
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