Many Happy Returns Mind Your Step: Before You Build a Bond Ladder
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Sep 2, 2026 Gilt ladders promise tidy, predictable cash flow, but their appeal comes with trade-offs. This discussion explores matching maturities to real-life spending, individual gilts versus bond funds, nominal bonds versus inflation-linked bonds, and the risks of locking in today’s yields. It also considers savings accounts and annuities, before tackling whether developed countries can really default on their debt.
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A Perpetual Ladder Is Really A Bond Fund
- A perpetual individual-bond ladder behaves economically like a bond fund.
- Direct ownership offers more maturity control and transparency, while individual gilts may retain UK tax advantages unavailable through funds.
Why Low-Coupon Gilts Can Be Tax Efficient
- Outside tax wrappers, gilt coupons count as savings income but capital gains remain free of capital-gains tax.
- Discounted low-coupon gilts therefore deliver much of their yield through tax-free redemption gains.
Pull To Par Does Not Remove Opportunity Cost
- Holding a government bond to maturity provides scheduled repayment if the issuer performs.
- The psychological comfort can hide opportunity cost: long-dated bonds still fluctuate sharply and become effectively illiquid when held through maturity.