What is a gilt
A gilt is a bond issued by the UK government to borrow money in pounds sterling. It promises regular interest payments and repayment of the face value on a set date.
The name comes from the original paper certificates, which had gilded edges. "Gilt-edged" is still used to mean very low default risk. The UK government has never defaulted on a gilt, but no bond is risk-free in price terms.
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
Formal definition and types
UK gilts are sterling-denominated debt securities of HM Treasury. They are issued through the UK Debt Management Office, mostly by bond auction.
- Conventional gilts pay a fixed coupon on face value and repay face value at maturity. A name such as "Treasury Gilt" plus a coupon and a year shows the coupon rate and the maturity.
- Index-linked gilts adjust both coupon and principal to UK inflation, measured by the Retail Prices Index.
- Green gilts fund environmental spending. Their payment terms work like conventional gilts.
- Strips are coupons and principal separated and traded as zero-coupon instruments.
Edge cases:
- Clean and dirty price. Gilt prices are quoted "clean", without accrued interest. A buyer pays the clean price plus accrued interest, which is the dirty price.
- Ex-dividend period. Shortly before a coupon date, a gilt goes ex-dividend. A buyer in that window does not receive the next coupon.
- Undated gilts. These had no fixed maturity. The government has since redeemed them.
Gilt yield and price
Gilt yield is the return you get if you buy at today's price and hold the gilt to maturity. Price and yield move in opposite directions.
Worked example (hypothetical)
A conventional gilt pays a fixed coupon on its face value.
- After a strong inflation report, markets expect higher Bank of England rates.
- New gilts are now issued with higher coupons. The old gilt's fixed coupon looks less attractive.
- Sellers cut the old gilt's price below face value.
- A buyer at that lower price still gets the same coupon. At maturity, they also gain the difference up to face value. Their yield is therefore above the coupon rate.
When rates are expected to fall, the process runs the other way. The price rises above face value and the yield drops below the coupon.
To run real figures, use the bond tools on our calculators page. Longer-dated gilts react more strongly to rate changes because of their duration.
Where you see the term
- News: reports such as "gilt yields rose" or "gilts sold off" after Bank of England decisions, UK inflation data or budget news about the fiscal deficit. Yield changes are usually given in basis points.
- Spreads: the gap between gilt yields and German Bund or US Treasury yields is used to compare UK borrowing costs.
- Platforms and reports: brokers may list gilt futures or bond CFDs (derivatives that track gilt prices). Fund reports list gilts as holdings.
- Market stress: gilts can attract a flight to quality. UK-specific shocks can also push their yields sharply higher.
For a reader in Pakistan, holding any sterling asset also brings currency risk against the rupee.
Trading gilt futures or bond CFDs with leverage can lose money fast, including more than you expected.
Related terms
Coupon · Face value · Bond duration · Accrued interest · Bund · Eurobond · Credit spread · Default · Fundamental analysis · Trading glossary
Frequent questions
What is a gilt in simple words?
It is a loan to the UK government, packaged as a bond that pays interest and repays face value at maturity.
What does gilt yield mean?
It is the annual return implied by today's gilt price if you hold the bond to maturity. It is not the same as the coupon.
Why do gilt prices fall when yields rise?
A gilt's coupon is fixed. When new bonds pay more, the old gilt's price must drop until its yield matches the market.
Are UK gilts the same as Pakistani government bonds?
They work in the same way, but they are a different issuer and currency. Pakistan's government issues its own securities in rupees.
Are index-linked gilts safe from inflation?
Their payments follow UK RPI, but their market price can still fall when real yields rise.