Retail investors piled into UK government debt last month, as the country's borrowing costs skyrocketed and traders scooped up a bargain. 

The yield on 10-year gilts peaked at almost 4.9 per cent in January as international investors fretted about Britain's fiscal policy and broader macroeconomic concerns. 

But investors who bought at the peak will have already seen solid growth in the value of their bonds, with 10-year yields trading at 4.55 per cent on  Thursday. 

Gilt trading increased by 75 per cent on Hargreaves Lansdown's platform in January 2025 compared to a year ago, with trades almost doubling those made in December.

Hargreaves Lansdown said the rise in gilt trades was a result of uncertainty over the impact of US President Donald Trump's policies, as well as the current affordability of government debt. 

Hal Cook, senior investment analyst at Hargreaves Lansdown said: 'It seems the opportunity presented by the spike in gilt yields in January was too good to miss for HL clients. Both the number of trades and the amount traded were much higher than we've seen recently.

'Looking back to January 2024, the number of trades and amount of assets invested this January were 75 per cent higher. A staggering increase. Both figures were much higher than December 2024 too, with the number of trades seeing a 93 per cent increase.'

Gilts are sterling-based bonds issued by the UK Government. Gilts pay a dividend, known as a coupon, every six months, and are repaid in full at their maturity. 

They are deemed very low risk due to the Government's credit history, with the UK having never failed to make gilt payments to date. 

DIY investors spot an opportunity  

Jason Hollands, managing director of Bestinvest, says the dramatic shift in gilt yields last month came as a result of uncertainty ahead of Trump entering the White House. 

He said: 'Yields moved higher globally as markets factored in expectations that the expansionary fiscal policy of the incoming Trump administration would result in the US economy running hot (requiring rates to stay higher for longer) and the deficit will grow further.'

Hollands also cited a weak domestic outlook, the looming impact of the Autumn Budget and plans for new gilt issuance to fund borrowing. 

On top of this, a popular 0.25 per cent Treasury gilt matured on 31 January, which could have seen significant sales as investors looked to make the most of tax-free returns.

The 0.25 bond was the most held position among the 25-34, 35-44, and 45-54 age groups among Interactive Investor in the third quarter last year.

Cook said: 'We're expecting February to be another popular month for gilt purchases, largely linked to the maturity of the gilt noted above on 31 January – many clients will have received their maturity payment last week and given continued elevated yields, reinvesting into another gilt may be attractive.'

Meanwhile, AJ Bell said gilt purchases by advisers rose by 436 per cent over the course of 2024 on its Investcentre platform.

Mark Rendle, AJ Bell Investcentre product director, said: 'The continuing trend among advisers towards investing in government bonds showed no sign of abating in 2024, with a significant uptick in adviser gilt dealing across the platform and notably via our online gilt dealing service.'

Tax benefits 

One reason investors buy gilts is to benefit from the tax savings they offer. 

Gilts are exempt from capital gains tax, meaning that that those paying higher and additional rates of tax can make use of gilts as tax-efficient investments. 

'The annual tax-free personal savings allowance has been frozen since inception and many more people will now find they are getting taxed on their savings interest who weren't previously affected,' Hollands said. 

Basic rate taxpayers get a PSA of £1,000, whereas it is just £500 for those paying a higher rate. Additional rate taxpayers receive no PSA. 

In fact, Hollands points out that some gilts look even more attractive as most of their yield are made up of (tax exempt) capital gains, as many were issued during an era of ultra-low interest rates with low interest coupons.

This means that some could deliver returns equivalent to a pre-tax cash interest rate of more than six per cent - something you won't find in the savings market.  

Freetrade launches commission-free trading 

The upsurge seen in gilt purchases so far in 2025 hasn't gone unnoticed. DIY Investment platform Freetrade has launched commission-free access to the gilt market, which it said will open the market to a 'new generation of retail investors'.

The platform, recently acquired by IG Group for £160million, is the first to offer fee-free investing in the UK Government bond market.

Freetrade said its users will be able to trade a range of bond maturities, allowing them to diversify their portfolios and benefit from tax efficiencies.

Freetrade said gilts will be open to both its standard and premium subscribers and can be traded in general investment accounts, Isas and Sipps.

Viktor Nebehaj, Freetrade's chief executive and co-founder, said: 'For the first time, today's launch opens up commission-free execution in this historic asset class, giving the next generation of retail investors low-cost access to the UK government debt markets.

'With interest rates reaching a peak and increased volatility in equity markets, we've seen more and more retail investors look to fixed income to lock in attractive yields and add ballast to their portfolio. As Freetrade continues to grow with our customers, we're committed to maintaining a high velocity of new product launches.'

In December 2023, Freetrade launched access to the Debt Management Office's weekly UK Treasury bill auctions, and said it has since executed £650million in orders for these.