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(Bloomberg) -- It was the buzziest bond trade in London’s financial circles — a good chance at a quick profit, and all the gains coming tax free.

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As far back as 2022, a UK bond maturing in 2061 was one of the most popular plays, with City bankers buying them for their own personal accounts and brokers reporting a surge in trading volumes from wealthy clients.

Instead, they’re turning out to be a losing bet. The notes have plunged, wiping out more than half their value since 2022, in a selloff across longer-dated notes that’s been fueled by concerns over government spending. At a time when “buying the dip” is paying off for stock traders, the UK’s 2061s stand as a reminder that it can also be a treacherous game.

“People are still holding onto the position hoping that it will work,” said Megum Muhic, an interest rate strategist at RBC Capital Markets, calling it “the most talked about bond” in the City. “It’s quite strange. It’s almost turned into a religion or something.”

The 2061s are part of a niche class of ultra-long dated securities, like Austria’s 100-year bond, that’s seen prices tumble across the board. BlackRock Inc.’s long-dated Treasury ETF, dubbed the “widow maker” of the ETF world, has also lured in scores of traders looking for a high-risk way to bet on the ups and downs of interest rate moves.

“Everyone owns the 61s,” said Chris Iggo, chief investment officer for core investments at AXA IM. He likened it to a “getting fired” hedge, essentially a long-shot bet that would pay off if a recession crippled London’s finance industry.

In many ways, the bond is a relic from a bygone era. Sold in 2020 at the height of the pandemic when interest rates were at rock bottom, the 2061s has a coupon of just 0.5%. With such a low interest rate compared with other kinds of bonds, prices have fallen fast. While they were issued at about £97, the notes sank past £50 in 2022 and now trade at a record low of £25.

Still many speculators remain undeterred. Among the 96 gilts listed on Hargreaves Lansdown, the UK’s largest investment platform, the 2061s had the highest number of individual sell trades, and came in second for buy orders over the past 12 months.

“You see retail products in the equity space, like 3x Nasdaq or 3x Nvidia,” said Muhic of RBC. “It really is maximum upside potential. The 61s are basically the equivalent.”

The trade, if done right, comes with a big tax break. The 2061s are unusual because they pay hardly any interest, so there’s not much income to be taxed. And like all gilts, they are exempt from capital gains tax, which runs at 24% for higher earners. That is especially relevant for a low-priced bond with plenty of room to run. A bounce to the late-2021 levels would be close to 300%.

With impeccable market timing, some traders have been able to lock in profits. Mark Taber, a well-known private fixed income investor, has dipped in and out of the bonds in the past, often holding them for just a few weeks because they’re so risky.

“The idea people are going to quadruple their money on these 2061s is probably a little fanciful,” he said. “I don’t have these rose-tinted spectacles where I think they’re going to make me a fortune in a couple years. I nervously trade them.”

The other selling point is that, in theory, the price should soar if there’s a recession and inflation subsides, which would push yields down from near multi-decade highs. Given the UK’s feeble economy, it’s not a far-fetched scenario to many traders. And unlike other speculative trades, like a penny stock that can go to zero or an options contract that expires worthless, the notes are backed by the British government to be paid in full, albeit in 36 years.

Some of the enthusiasm for the 2061s has waned this year — partly because the bet hasn’t paid off as expected. Others say there’s better value in choosing less popular gilts, such as the 2046 note, which also has a low coupon. Net inflows into the 2061 so far this year are below levels from a year ago, according to Interactive Investor data.

“Holders could also continue to see losses if investors lose confidence in the fiscal credibility of the UK government and inflation keeps rising, as has been the story this year,” said Sam Benstead, fixed income lead at Interactive Investor.

David Belle, who founded Fink Money and trades his own capital, predicts more investors will be attracted to the 2061 because of its tax advantages, especially given the recent capital gains tax hike. He said he'd invested around £7,000 over the last year, making it the only fixed-income security in his portfolio of mostly US equities.

“It’s something I’m just happy to hold onto and see what happens,” Belle said by telephone from his home in Wimbledon. “The UK is a complete basket-case right now, so I’m not actually too sure of direction in the next three months or so. But it’s got to return to par unless the UK defaults.”

--With assistance from Helene Durand.