What are gilts?

Let’s understand gilts in simple terms.

Gilts are essentially the UK’s version of US government bonds.

  1. 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
  1. 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
  1. 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”)
  1. 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

When you see a news article saying “gilt yields rising,“ it means the government would need to pay higher interest rates to borrow money, which can be a sign of reduced investor confidence or increased perception of risk.