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

2. 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

3. 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”)

4. 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