What are gilts?
Let’s understand gilts in simple terms.
Gilts are essentially the UK’s version of US government bonds.
- Basic Definition:
- Gilts are bonds issued by the British government
- The name “gilt” comes from the historical practice of gilding the certificate’s edges with gold leaf
- Just like US Treasury bonds, they’re considered very safe investments
- How They Work:
- When you buy a gilt, you’re lending money to the UK government
- The government promises to:
- Pay you interest (called the “coupon”) regularly
- Return your original investment when the gilt matures
- These payments are guaranteed by the British government
- Key Differences from US Bonds:
- They’re denominated in British pounds (£) rather than US dollars ($)
- Interest is typically paid twice a year (US Treasury bonds pay every six months too)
- Different naming convention (UK uses “gilts,” US uses “treasuries”)
- Why They Matter:
- They’re used by the government to raise money for public spending
- The interest rates (yields) on gilts influence many other interest rates in the UK economy
- They’re important indicators of investor confidence in the UK economy
- Pension funds and insurance companies are major buyers of gilts
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