What Are Gilts?

Gilts are government bonds issued in the U.K., India, and Commonwealth countries and are similar to U.S. Treasury securities. The term gilts is derived from the certificates with gilded edges that were historically issued by the British government and is still used as an indication of th꧟e integrity of the investment.

The British government has never failed to pay the interest due on its gilts, which have been issued since 1694 when money was needed to finance a war with France.

Like U.S. Treasury securities, gilts pay a relatively low but virtually risk-free rate of return. They are sensitive to interest rate changes but provide diversification because of their low or negati🅘ve correlation with stock markets.

Conventional Gilts

Conventional gilts, which comprise most U.K. government debt, are issued in denominations of the British pound and are not subject to adjustments for inflation.

Conventional gilts are nominal bonds that promise to pay a fixed coupon rate at set intervals, such as every six months. When a conventional gilt matures, its holder receives the last coupon and the 澳洲幸运5官方开奖结果体彩网:principal.

When issued, the coupon rate of a conventional gilt approximates the maꦿrket interest rate at that time. Conventional gilts have prescribed matu🤪rities, which are often five, ten, or 30 years from the date of issuance.

Index-Linked Gilts

Index-linked gilts have borrowing rates and principal payments that are linked to changes in the inflation rate. These gilts are similar to U.S. Treasury Inflation-Protected Securities (TIPS).

The U.K. was the first country to issue inflation-indexed bonds in 1981. Index-linked gilts were first introducꦏed in In🏅dia in 2013.

Index-linked gilts in the U.K. make coupon payments every six months, coupled with the principal at maturity. Coupon rates are adjusted to reflect changes in the U.K. 澳洲幸运5官方开奖结果体彩网:retail price index.

For gilts issued after September 2005, coupon rates are adjusted based on the inflation rate published three months previously. Securities issued before September 2005 use an eight-month lag.

Corporate Bonds or Gilt-Edged Securities

Low-risk corporate bonds and stocks are often called gilts or gilt-edged securities. A gilt-edge denotes a high-quality item, the value 𝔍of which remains relativ♏ely stable over time.

Pr♍ivate sector gilts or gilts-edged securities should not be confused with government bonds. Corporate gilts in the U.K. or Commonwealth countries are considered the equivalent of blue-chip securities in the United States.

A bond described as gilt-edged has top ratings assigned by credit rating services such as Standard & Poor's or Moody's. 澳洲幸运5官方开奖结果体彩网:Gilt-edged bonds have yields below those offered by more speculative bonds. These bonds often serve as the 澳洲幸运5官方开奖结果体彩网:corn🐠erstone of investment portfolios for conservative inv♐e🐻stors whose priority is capital preservation.

Gilt Funds

Gilt funds are exchange-traded funds (ETFs) or mutual funds that inves♔t primarily in government bonds in the U.K.

Gilt funds have the conservative objective of preserving capital. Gilt funds often invest▨ in several different types of short-term, medium-term, and long-term government securities. Some examples of gilt funds are:

• iShares Core U.K. Gilts UCITS ETF: invests in U.K. government securities. The fund's one-year return in 2023 was 3.7% in British pound terms with a 0.07% expense ratio.
• Janus Henderson Institutional U.K. Gilt Fund: invests primarily in U.K. government Gilt securities. One-year performance in the fund’s investor share class was 3.36% in British pound terms, net of fees, as of the end of 2023.
  

The Bottom Line

Gilts are government bonds in the U.K. and other Commonwealth countries, thouꦦgh the term also is used to refer to high-quality corporate bonds.

Gilts areไ considered s🌃afe investments, giving investors a consistent return, though their values can fluctuate with interest rate changes.