Gilts: Why UK Government Bonds Still Pay More Than US Treasuries — And Whether the Premium Is Worth It
UK government bonds are offering investors something increasingly unusual in global fixed-income markets: a meaningful yield premium over their US counterparts. With long-term gilt yields at 4.45% in January 2026, compared to the US 10-year Treasury at 4.08%, the roughly 37 basis point spread represents a tangible income advantage for investors willing to take on sterling-denominated sovereign risk. But this premium didn't appear in a vacuum. Over the past twelve months, two of the world's most important central banks have charted strikingly different courses. The Federal Reserve has slashed its benchmark rate by nearly 70 basis points since September 2025, from 4.33% to 3.64%. The Bank of England, meanwhile, has been far more cautious in its own easing cycle, leaving UK bond yields elevated relative to their pre-pandemic norms. This policy divergence has widened the UK-US yield gap and raised a fundamental question for fixed-income investors: does the extra yield on gilts adequately compensate for the risks? The answer depends on three interlocking factors — monetary policy trajectories, fiscal sustainability, and the evolving global trade landscape. With the Supreme Court's recent ruling striking down Trump's reciprocal tariffs and the President's retaliatory announcement of a new 15% global levy, the trade environment has become even more unpredictable. For gilt investors, the implications are profound.