Gilts

Gilts are government bonds issued by the United Kingdom (and, by extension, similar debt securities in other Commonwealth countries such as India). The name comes from the gilded edges of historical certificates and has come to signify a high-quality, low-risk sovereign debt. Gilts offer regular coupon payments and return the principal at maturity; they are considered among the safest fixed-income investments because the U.K. government has a long history of meeting its obligations.

Types of gilts

Conventional gilts

Also called nominal gilts, these pay a fixed coupon at regular intervals (typically semiannually) and repay the principal at maturity.
Denominated in British pounds and issued with a range of maturities (commonly 5, 10, or 30 years).
Coupon rates are set close to prevailing market interest rates at issuance.

Index-linked gilts

Principal and coupon payments are adjusted for inflation, similar to U.S. TIPS (Treasury Inflation-Protected Securities).
The U.K. introduced inflation-indexed gilts in 1981; other countries have followed.
Coupon payments are usually semiannual; adjustments are based on the U.K. Retail Price Index with an official publication lag (later issues use a three-month lag for the inflation reference).

Gilt-edged (corporate) securities

The term “gilt-edged” is sometimes used to describe very high-quality corporate bonds (blue-chip credit).
These corporate issues carry top credit ratings and typically offer lower yields than more speculative corporate bonds.
They are favored by conservative investors focused on capital preservation.

How to invest in gilts

Individual investors can buy gilts directly on the primary market (via the U.K. Debt Management Office mechanisms) or trade them on the secondary market through authorized brokers.
Many investors gain exposure via gilt funds—mutual funds or ETFs that hold a portfolio of government bonds—offering diversification across maturities and types of gilts. Example: iShares Core U.K. Gilts UCITS ETF is one such fund that tracks U.K. government bonds.

Price behavior and interest-rate sensitivity

Gilts’ market values move inversely with interest rates: when rates rise, existing bond prices fall; when rates fall, bond prices rise.
The degree of price sensitivity depends on a gilt’s duration and remaining maturity—longer maturities are generally more sensitive to interest-rate changes.
Because gilts are relatively low risk, their yields are typically lower than those of comparable corporate bonds.

Clean and dirty prices

Clean price: the quoted market price of a gilt excluding any accrued interest since the last coupon.
Dirty price: the total amount the buyer pays (clean price plus accrued interest).

Key points

Gilts are sovereign bonds from the U.K. (and similar Commonwealth government debt) known for high credit quality and capital preservation.
They come in conventional (nominal) and index-linked (inflation-adjusted) varieties.
Investors can buy gilts directly or through funds/ETFs; they can also trade them on secondary markets before maturity.
Prices fluctuate with interest rates; longer-dated gilts are more rate-sensitive.
“Gilt-edged” can refer to top-quality corporate bonds as well as government issuance.

Bottom line

Gilts provide a low-risk way to preserve capital and diversify fixed-income holdings. Choose between direct holdings and pooled funds depending on your need for control, diversification, and liquidity, and bear in mind that gilt values will vary with changes in interest rates and inflation expectations.