Friday 6 January 2012

Portfolio Sell: UK Government Consols 4% (CN4)

I have now sold my only government bonds, known as 'gilts' in the UK. The derivation of the term 'gilts' was because the certificates were originally edged with gold printing or gilt-edged, highlighting their quality of safety, being guaranteed by the government. (The certificates are much more prosaic today - if you ever get to see one, that is.)

Gilts form the Level 5 tranche of investment on the DIY Income Investor Income Pyramid, which reflects the fact that this is a safe but relatively low-yield asset class.

So why has the golden shine worn off gilts for me?  

The security is called Consols 4% (code CN4) and is a perpetual security, with no maturity date. 'Consols' are about as safe as you can get but because of this endless stream of fixed income, they do tend to behave differently to most - dated - government stock. I have watched the price rising since I bought them, peaking (neatly) at the very end of 2011 at very nearly par (i.e. 100% of the face value). Conversely, the yield has dropped from nearly 5% when I bought to the original face yield of 4%. 

Now, it is not every day that you expect to obtain double-digit returns on ultra-safe government bonds. My view is that this has happened due to the short-term gyrations in the European financial markets and that this mini-bubble is unlikely to continue.

So I have sold and this means I am no longer holding any government bonds - potentially increasing the overall risk profile of my portfolio.

Does this mean that I have suddenly become a short-term speculator? I hope not - but some of the more risky investments with yields of 9% or 10% are looking much more attractive now.

Sale price: £0.9288

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. I'd never heard of Consols! Big spread between bid and ask, doesn't that mean making a decent overall return difficult?

  2. This is a good and strategic move to supplement income. This is what we call passive income that will allow you to earn more via strategic investment.