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  The Bank of England, through QE holds a third of HMG's debt so effectively the government owes the money to itself.
  
  Peter is correct about those sovereign funds of course. Alexander is also right about the BoE and insurance/pension companies.
  
  HMG borrows money by issuing gilts that get traded in the markets. These gilts are currently offering a definite loss to holders in a high inflation low interest rate environment. Currently long duration gilts are a higher risk than short duration gilts due to the longer term impact of QE boosting inflation to unknown levels. The only reason to hold gilts is if you need a known return over a specific period to offset specific risks/guarantees. This is why insurance companies buy them to underpin annuity purchases and pension schemes for pension income liabilities. Annuity rates are determined by reference to 15 year gilts.
  
  Ever since UK base rates dipped to 0.5% I have not used specific gilt funds in my portfolios as I do not have any kind of guarantees to underpin. Instead I have used investment grade bonds for that part of my portfolios that have helped my portfolios outperform their peer groups though at a slightly higher volatility. For the last 2 years I have been reducing my weightings of investment grade towards more flexible strategic bonds and high yield bonds as well. This is to reduce exposure to a potential bond bubble when interest rates eventually rise. Recent talk of a negative base rate does not deter me from this positioning which is a long term strategy.
  
  Nobody should take these comments as an investment recommendation. Seek advice.

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