We can’t believe we’re writing this . . . but long-term inflation-linked gilts have now crashed even harder than every online bro’s favourite digital “asset”.
Obviously this is a fight to be the least awful investment of the past year, and bitcoin is down about 67 per cent since last November. It’s hardly something to shout about for enthusiasts who claimed it would be a great inflation hedge.
But the fact that inflation-proofed long-term UK sovereign debt has done even worse has blown our minds. Just look at the chart at the top of this post. This is wild stuff.
At pixel time the UK “linker” maturing in 2073 — aside from a handful of perpetuals, the longest maturity UK government bond in the market — has lost 78.6 per cent of its value since being issued on Nov 23. It is down over 80 per cent from its peak in December 1.
An 80 per cent drawdown for a UK government bond in less than a year.
The conventional vanilla UK gilt maturing in 2071 is down 70 per cent over the same period. In price terms, that is a drop from trading at a peak of about 150 pence on the pound in early December to 46 pence now. In yield terms, that is a move from a low of 0.5 per cent to 4.2 per cent today.
To us this shows two things.
Firstly, that there has been a mass liquidation among UK pension plans that dominate the long-term linker market, and in long gilts in general, beyond what the UK’s admittedly woeful economic and financial fundamentals would indicate.
But secondly, when duration blows up it can inflict just as much pain as a silly cryptocurrency or shaky junk bond.
Update: Former Alphavillain Simon Hinrichsen has found a few other investments that have remarkably done a little less awfully than the 2073 linker — such as Ukrainian GDP warrants.
