Gilts

Gilts are bonds issued by the government of the United Kingdom to finance public spending that is not covered by taxes. When the government runs a deficit or refinances maturing debt, it sells gilts to investors, who receive regular interest payments and their money back at maturity. Gilts are denominated in pound sterling and are the UK equivalent of US Treasury securities or German Bunds.

The name comes from "gilt-edged" securities, after the gilded edges of early government bond certificates, a sign of their safety. Gilts are issued on behalf of HM Treasury by the UK Debt Management Office (DMO), an executive agency that took over this role from the Bank of England in 1998, separating debt management from monetary policy. Very short-term UK government borrowing is done through Treasury bills, which are not gilts.

Buying a gilt is like lending money to the British government in return for a written promise. The government pays you a fixed amount of interest twice a year and repays the full loan on an agreed date, which may be two years or fifty years away.

Because the UK government can raise taxes and borrows in its own currency, investors see these promises as very safe. That safety makes gilts a benchmark: banks, pension funds and companies price their own loans and investments off gilt yields. If you do not want to wait until maturity, you can sell a gilt to someone else, but the price you get depends on where interest rates have moved since you bought it.

• Conventional gilts. The majority. They pay a fixed coupon in two equal instalments each year and repay £100 per £100 nominal at maturity. Their names show the coupon and maturity year, for example "4¼% Treasury Gilt 2036".
• Index-linked gilts. First issued in 1981, they adjust both coupons and principal for inflation using the Retail Prices Index (RPI), a form of indexation. The government has said RPI will be aligned with the CPIH measure from 2030, which will reduce payouts on these bonds compared with the old method.
• Green gilts. First sold in September 2021, they fund spending that meets the government's green financing framework and work like conventional gilts; see green bonds.
• Gilt strips. Some gilts can be split into separate coupon and principal payments, each traded as a zero-coupon bond.

Each March the Treasury publishes the DMO's financing remit for the coming fiscal year, revised as forecasts change. For 2026–27, planned gross gilt sales were £250.6 billion after an October 2026 revision, including £12 billion of green gilts. Most gilts are sold in the primary market at auctions, and some, especially long and index-linked bonds, through syndications run by a group of banks. Banks known as gilt-edged market makers act as primary dealers, bidding at auctions and quoting prices in the secondary market.

A gilt's price is the present value of its remaining cash flows, discounted at the market yield. With semi-annual coupons:

• $P$ is the price per £100 nominal.
• $C$ is the annual coupon per £100 and $F$ is the redemption value (£100).
• $y$ is the annual yield to maturity and $n$ is the number of remaining half-year periods.

Example: a gilt with a 4% coupon and two years left pays £2 every six months. If market yields are 5%, each payment is discounted at 2.5% per half-year: $2/1.025 + 2/1.025^{2} + 2/1.025^{3} + 102/1.025^{4} \approx 1.95 + 1.90 + 1.86 + 92.41 = 98.12$. The gilt trades at about £98.12, below £100, because its coupon is lower than current yields. When yields rise, prices fall, which is the interest rate risk that all bondholders face; see yield to maturity.

Gilt yields across maturities form the UK yield curve. Short yields track expectations for the Bank Rate, while long yields also reflect inflation expectations, the term premium and views on the public finances.

Major holders include pension funds and insurers, which match long-term liabilities with long gilts; overseas investors; banks, which hold them as liquid assets and use them as collateral in repo markets; and the Bank of England. Under quantitative easing from 2009 the Bank's Asset Purchase Facility bought gilts, with total purchases (including a small amount of corporate bonds) reaching £895 billion; since 2022 it has been reducing them through quantitative tightening, including active sales.

In September 2022 a "mini-budget" of unfunded tax cuts triggered a sharp rise in long gilt yields. Many defined-benefit pension schemes used leveraged liability-driven investment (LDI) strategies, and the price fall forced them to post more collateral, so they sold gilts, pushing yields higher still. The Bank of England intervened with temporary purchases of long-dated gilts from 28 September to 14 October 2022 to restore financial stability. The episode led to tighter rules on LDI leverage and is often cited as a lesson in how fiscal policy credibility affects borrowing costs.

For UK individuals, gains on gilts are exempt from capital gains tax, while coupons are taxed as income unless held in a tax-free wrapper such as an ISA. This makes low-coupon gilts bought below par attractive to higher-rate taxpayers, since most of their return comes as a tax-free gain. Retail investors can buy gilts through brokers or, for some issues, through the DMO's purchase and sale service. Gilts are generally treated as the sterling risk-free rate benchmark, although their price can still swing widely, and the UK's credit rating and national debt trajectory remain closely watched by investors.

• UK Debt Management Office
• Bank of England