Deep Dive: 2022 UK gilts reset improved outlook for the coming decade

Yields around 5%

High-quality bonds have historically offered a “reliable hedge” against equity market downturns, alongside stable returns, and the 2022 valuation reset on UK bonds has boosted the asset's returns forecast.

Mohneet Dhir, head of multi-asset product specialism at Vanguard, argued: "The valuation adjustment that we saw in UK bonds last year has led to an increase in return forecasts for UK bonds over the next ten years, with annualised nominal returns predicted at between 4.3-5.3% according to our models. A large part of this improved performance is driven by the sharp rise in UK yields, the compounded effect of which is adding to the outlook for UK bonds." This was a change of pace from the past few years, when managers stayed away from longer duration gilts and favoured shorter duration one...