Treasury Gilt is a bond issued by the UK government in British pounds, issued by the HM Treasury and registered on the London Stock Exchange. Literally, "Gilt" means "golden paper." This originally referred to the times when such bonds had a golden edge and were issued in the form of bearer bonds. Figuratively, "gold" in the name signifies the level of reliability that the UK declares by issuing such securities on the stock market.
Types of treasury gilts:
Currently, there are 2 types of such securities: conventional and index-linked.
Most of the issued gilts, about 75% of the UK’s debt in the form of bonds, are
conventional gilts. They guarantee the repayment of the nominal value and coupons once every period. Typically, gilts pay coupons every six months, with a price calculated from a nominal value of £100 but can be traded in smaller amounts, down to 1 penny.
About 25% of the UK’s issued debt in the form of bonds is
index-linked gilts. The main difference is that the coupon payments, as well as the nominal value repayment dates, are indexed depending on the UK’s Retail Price Index (RPI).
Advantages of treasury gilts:
1) They are historically considered one of the most reliable instruments on the market due to the minimum risk of issuer default;
2) Long-term duration;
3) Exempt from tax;
4) Very high liquidity.
Disadvantages of treasury gilts:
1) Low yield, in case of high inflation, the securities could lose their value with a rise in interest rates;
2) Comparatively lower returns compared to corporate bonds;
Examples:
1)
UK, Gilt 1.5% Jul 2026, GBP
2)
UK, Gilt 0.5% Jan 2029, GBP
3)
UK, Gilt 3.75% Sep 2021, GBP
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