A Guide to Fixed Income Investments and Rising Gilt Yields

If you have been following the news recently, you may have spotted headlines about the soaring government borrowing costs. In early October 2026, the yield on 30-year UK government bonds (or gilts) passed 6% for the first time since 1998. UK borrowing costs are now the highest in the G7; the group of seven major economies that includes the US, Germany and Japan.

Fixed income investments are also in the headlines, but for all the wrong reasons. They are usually seen as the steadier part of a financial portfolio, but as borrowing costs have climbed, the value of many existing bonds and bond funds has fallen. 

Rising gilt yields can affect everything from mortgage rates and savings to pensions, investments and the wider cost of living. Below, we explain what fixed income investments are, why gilt yields are rising and what this could mean for your financial portfolio.

Fixed Income Investments and Gilt Yields: Helpful Definitions

What Are Fixed Income Investments?

Fixed income investments are loans you make to the government or a company in return for regular interest payments. Your original money will need to be repaid by a set date.

The main types of fixed income investments are:

• Gilts – bonds issued by the government.
• Corporate bonds – bonds issued by companies. They usually pay more interest than gilts, because there is a greater risk that the company could fail to repay you.
• Bond funds – funds that invest in several different bonds. Your money is spread across all of them, so you are not relying on any single bond.

What Are Gilts?

The easiest way to think of a gilt is as a form of IOU. You lend the government a set amount of money, for example £100, and it will pay you interest every year (known as the coupon). It will then return your £100 when the gilt reaches its maturity date, which can be anything from a few months to 50 years.

The UK government is considered very unlikely to fail to repay, which makes gilts one of the lowest-risk investments available. This is why many pension funds hold more fixed income as people approach retirement.

Understanding Gilt Yields and Why They Are Rising

A gilt yield is the return that you, the investor, will receive each year for lending to the government. It will be shown as a percentage of what you paid for the gilt. For example, if you pay £100 for a gilt that pays £5 interest per year, your gilt yield is 5%.

Gilts can be bought and sold after they are issued. Their price will change but the interest paid will remain the same; and when gilt prices fall, yields rise. Using that same example, if you pay £90 for a gilt instead of £100, you will still receive £5 per year, but only on £90 invested. This would take your gilt yield to around 5.6%. 

As of October 2026, investors now want a higher return to lend to the UK government, which means fewer are willing to buy gilts at their current price. This is due to three key reasons:

1. Inflation. Higher energy prices pushed inflation up to 3.5% in September 2026. Continuing with our same example, the £5 a year that a gilt pays is worth less over time with the rising cost of living, so investors want a higher return to make up for it.
2. Interest rates. Markets are expecting the Bank of England to raise interest rates on 5th November 2026. This means that investors could earn better rates on savings accounts and newly issued gilts, which makes existing gilts paying lower interest less attractive.  
3. The Budget. The government spent £24.5 billion more in September 2026 than it received in taxes and other income, so it must borrow the difference by selling gilts. Investors are waiting to see how the Chancellor plans to manage this in the Budget on 28th October, and this uncertainty makes them ask for more in return.

How Rising Gilt Yields Impact Fixed Income Investments

Rising gilt yields could impact your fixed income investments, depending on whether you already hold them or you are investing now.

If you already hold bonds or bond funds, their value is likely to have fallen and they may become less attractive to investors. For example, if you hold a gilt that pays 3% while new gilts pay 5%, investors will not want to pay full price for yours. This is why some bond funds and pensions have lost value. This can be a shock if you are nearing retirement and your pension savings have been moved into bonds.

If you are holding an individual gilt until it matures, you may not be affected. You will still receive the interest and your money back in full at the end of the term, regardless of the gilt’s price on the market at the time. You will only make a loss if you sell your gilt before then, as you would have to accept the lower price.

If you are investing now, you can buy gilts and bonds at today’s lower prices while receiving the same fixed interest, which will give you a higher return. The rising yields can also benefit you if you are buying into an annuity, as annuity rates are now at their highest level in almost 18 years.

Get Expert Advice on Your Investments from Piercefield Oliver

Rising gilt yields can affect your investments and pensions in different ways. A change in one area can have a knock-on effect on another, and it can be difficult to spot these connections on your own. 

Our expert financial advisers will look at your investments, pensions and retirement plans together to understand how today’s higher borrowing costs could affect your finances. We will continue to review your portfolio as markets and your personal circumstances evolve, so you can rest assured that your plans stay on track.

Book your free 30-minute consultation with one of our advisers to understand what the rising gilt yields mean for you.