(Bloomberg) — UK retail investors will be able to buy gilts at the same price as primary dealers, the latest step aimed at broadening access to government bond markets in Europe.
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Trading platforms Hargreaves Lansdown and Interactive Investor will allow clients to indirectly participate in new gilt sales from the Debt Management Office by taking bids, buying the securities from primary bond dealers and re-selling them to retail investors at the auction price.
This private-sector initiative comes as governments across the region tap burgeoning demand from retail investors to diversify their funding base in light of higher financing costs, large spending plans and the withdrawal of central bank support.
Hargreaves Lansdown said it was launching the facility “in response to the notable surge in client demand for gilts,” and the first test will come next week in a DMO sale of seven-year bonds. The firm will work with bond dealer Winterflood Securities.
Retail investors currently buy and sell gilts at prices determined in secondary trading, which can be higher than at auctions.
The DMO said in an emailed statement that these investors will still be buying bonds in the secondary market, but with the “additional opportunity to access gilts forming part of the current auction programme.”
Clients will know the maturity and coupon of the gilt when they submit bids by 4pm the day prior to the auction, but will only get the price when the sale has been completed, Hargreaves Lansdown said. Investors will then pay the average accepted price for the gilt at the auction.
This is not the first time retail investors have access to gilts at primary market prices. In the past, the DMO operated a Retail Auction Facility that allowed an approved group of investors to buy gilts at auction, but it was suspended at the onset of the coronavirus pandemic in 2020.
Gilts are free from capital gains tax on profits made when selling or redeeming the bonds. Because taxes are still applied to income from coupons, notes with low coupons have proved especially attractive among retail investors.
(Updates with detail on gilts’ tax treatment in final paragraph.)
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