As if on cue, Barclays de Zoete Wedd has produced its long view - going back as far as 1918 - on the relative performance of shares, gilts and cash. This shows that pounds 1,000 invested in shares at the end of the First World War would be worth pounds 4,580 now, whereas the same invested in gilts would have fallen to just pounds 25.
The difference since the Second World War may be smaller but is still marked, with pounds 1,000 in shares worth pounds 18,260 now but the same in gilts worth just pounds 760. The return from gilts was only just higher than the return from building society accounts, which would have produced pounds 520. These figures all assume dividends and interest were reinvested and have been adjusted for inflation but take no account of tax.
With that history, why does anyone buy gilts and how can the Government hope to raise pounds 1bn a week from the gilt market? Gilts have produced a real return - more than kept pace with inflation - in only two periods, the Twenties and the Eighties. But in both periods shares did better, producing a still higher return.
Gilt returns have repeatedly been knocked by unanticipated inflation. With inflation now expected to stay low, though not necessarily at the current level of 2.6 per cent, there is a prospect of gilts producing real returns once more.
But BZW reckon that, while returns from gilts are likely to be higher than in the past, shares will continue to outperform, albeit by less than in the past. If you buy gilts use the income to fund share purchases. Equities still look the better bet.