MW 'The U.K. is not a basket case.' Keep calm and buy British bonds, this Dutch advisor suggests.

By Steve Goldstein

British government bonds are attractive, a Dutch advisor is saying, citing their positive inflation-adjusted yield and relative value compared to other European government bonds.

In a presentation, AFS Group research director Arne Petimezas argued the U.K. is not the basket case that many investors make it out to be. While the country's economic growth has been slow, it is in line with its peers, and inflation is under control.

He also points out that the U.K.'s debt-to-GDP ratio is not as high as some of its European counterparts, such as Italy and Greece, and its primary fiscal balance to GDP is in the middle of the pack. Despite this, these countries enjoy low yields, making gilts a more attractive investment opportunity.

One of the key drivers of AFS Group's positive outlook on gilts is the relative value they offer compared to other European government bonds. As Petimezas notes, the U.K.'s inflation rate is in line with that of its European peers, yet gilt BX:TMBMKGB-10Y yields are higher, providing a positive inflation-adjusted yield.

In contrast, the yields on German bunds BX:TMBMKDE-10Yare extremely low, with Petimezas noting that they have a negative yield adjusted for inflation. "They don't pay s**t," he said. This makes gilts an attractive alternative for investors seeking higher returns.

The U.K.'s economy is relatively insulated from trade tensions, as President Donald Trump has hinted that Britain may avoid tariffs.

Petimezas says this pitch is aimed at clients who buy bonds in British pounds, as the hedged yield for euro clients is not attractive.

-Steve Goldstein

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February 06, 2025 04:18 ET (09:18 GMT)

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