The Best Relative Value Trade We Have Ever Seen

The 10–15-year segment of the UK index-linked gilt curve offers an unusually attractive duration-neutral relative-value trade because recent issuance has saturated that maturity area.

• Over the past 18 months, the Debt Management Office has shortened gilt issuance maturities, and its last three index-linked syndications were all in the 10–15-year sector.
• The 5–10-year index-linked gilt curve has become increasingly steep, while the long end is inverted because 50-year linkers yield less than 30-year linkers.
• Selling a combination of short- and long-dated linkers and buying 10-year linkers on a duration-neutral basis now offers a record yield advantage, according to Bloomberg data as of 15 October 2026.
• Roll-down should add to the carry: 10-year bonds can move toward the 5-year part of the curve, while long-dated bonds may cheapen as they become more like 30-year bonds.
• The estimated total excess return is around 1.5% per year, or approximately 7.5% over five years, if the current distortion persists; a correction could deliver much of that gain in a single year.

Takeaway: Investors able to implement the trade should consider owning 10-year index-linked gilts against the 5- and 50-year wings, while recognising that the return depends on the distortion persisting or eventually correcting as expected.