If you are new to the world of gilts and government bonds, you may find some of the terminology and jargon used in this market difficult to understand. That's why we have created this glossary to help you navigate the key concepts and terms that you are likely to come across.
Whether you are a beginner looking to learn about the basics of gilts, or a seasoned investor looking for a refresher on some of the more technical terms, this glossary is a useful resource to help you build your knowledge and confidence in this important investment class.
Bonds issued by the UK government to raise funds.
A fixed-income security that pays a predetermined interest rate and is repaid at maturity.
The rate of return on a bond, expressed as a percentage of the bond's face value.
A graph that plots the yields of bonds with different maturities.
The date on which a bond will be repaid by the issuer. Credit risk: The risk that the issuer of a bond will default on their payments.
The risk that inflation will erode the purchasing power of a fixed-income investment.
The institution responsible for setting monetary policy, including interest rates.
The actions taken by the central bank to control the supply of money and influence the economy.
The rate charged by a lender to a borrower for the use of money, expressed as a percentage.
The interest rate paid by a bond, expressed as a percentage of the bond's face value.
A bond whose principal and interest payments are adjusted based on changes in the consumer price index.
An investment that provides a predictable income stream, typically through interest payments on a bond or other debt security.
The practice of spreading investments across multiple asset classes to reduce risk.
The profit made from selling an investment at a higher price than it was purchased for.
Where government had issued gilts with a range of maturity dates that are close together. Government can choose to redeem whole or part of the bond on any day between the first and last maturity date.
Refers to indexed gilts bought before 2005 where two RPIs are needed for the calculations. The lag is used so that the size of each interest payment is known at the start of the period that interest is paid on.
Where gilts are bought after 2005 there is a three month lag before the interest payments are linked to the Retail Price Index
The methods that are used to calculate payments and any accrued interest – the methodology is different for gilts bought before 2005, where there was an eight month lag, and after 2005 where there is a three month lag.
Refers to the general retail price index and rate of inflation that is used for indexed gilts.
Refers to the way index linked gilts with a three month lag are costed and the payments and interest calculated.
Undated gilts are the oldest type of gilts, some of which date back more than a hundred years. The gilts have low coupons and not much point in redeeming them. Interest payments are made twice yearly and some, three times a year.
The Debt Management Office is a UK government agency responsible for managing the country's debt and issuing gilts.
The market in which new securities, such as gilts, are issued and sold for the first time.
The market in which previously issued securities, such as gilts, are bought and sold between investors.
The process by which the DMO sells new gilts to investors through a competitive bidding process.
A measure of demand for gilts in a particular auction, calculated by dividing the total amount bid by the total amount offered.
Gilts whose principal and interest payments are adjusted based on changes in the retail price index (RPI).
Gilts with fixed coupon payments that are not linked to inflation.
The repayment of the principal amount of a bond at maturity.
A derivative security that separates the interest and principal payments of a gilt, allowing investors to buy and sell them separately.
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