Gilts: what are they?

Gilts: what are they?
A guide to Government gilts.

Last Updated: 12:26PM GMT 26 Mar 2009

What is a gilt?

Gilts are bonds issued by the Government to raise money. The term originated in Britain and referred to debt securities that had a gilt (or guilded) edge.

Who issues them?

Since April 1998 gilts have been issued by the Debt Management Office on behalf of HM Treasury.

Is their more than one type of gilt?

Yes. Conventional gilts are the simplest form of government bond and are the largest share of liabilities in the Government's portfolio. They guarantee to pay the holder a fixed cash payment - or coupon in bond jargon - every six months until the bond matures, at which point the holder receives the final coupon payment and get his original investment back. An investor who holds £1,000 nominal of 4pc Treasury Gilt 2016 will receive two coupon payments of £20 each on 7 March and 7 September until it expires in 2016.

There are other types such as index-linked gilts (IGs), which form the largest part of the gilt portfolio after conventional gilts. Here the coupon is related to movements in the Retail Prices Index (RPI) - in other words, it is linked to inflation.

How do you buy them?

Gilts can either be bought directly from the DMO at its outright gilt auctions or through the secondary market. Bidders at auction can choose to participate through a Gilt-edged Market Maker (GEMM) - a form of broker - who can bid directly by telephone to the DMO on the bidder’s behalf, or by completing an application form, providing that they are members of the DMO’s Approved Group of Investors.

Who buys them?

Anyone can buy gilts. Pension funds are by far the biggest buyers as they need to meet payments when people retire. They are also used by individuals who are looking for a steady income or as part of a balanced investment portfolio.

Source: DMO

http://www.telegraph.co.uk/finance/economics/5054206/Gilts-what-are-they.html