Webby Registered Posts: 29 Regular contributor ⭐
Can someone help me by defining what Gilts are? Am I right in thinking they’re a sort of share issued by the government at a fixed interest which can be brought and sold in the open market.

I've got my Unit 15 simulation and I'm just nervous and I'm worried I'm going to get a question asking about gilts and I just want to have it clear in my head what they are.

Thank you for any help.


  • sdv
    sdv Registered Posts: 585 Epic contributor 🐘
    Gilts (golden) are BONDS issued by government. They are called Gilts because the risk of losing money on that BOND is as good as GOLD (ie NONE)

    BOND are a loan contract which are marketable in a GILTS market. The Gilts price can go up or down depending on the current rate of interest.

    It has an agreed FIXED RETURN on the loan. ie 5% per annum
    It has a redemption date -eg loan will be repaid back on 31 December 2025

    Because the return is FIXED (£100 @5% = £5 interest) the value of investment can go up or down.

    The above gilts will have been issued when the Bank of England Interest rate was 5% in say 5 years a go.

    at the THEN market (current) interest rate of 5% on £100 the Investor will get £5 per annum until the redemption date.

    Now that the Interest rate has fallen to 1/2% (0.5%), the bond continues to get £5 on £100 invested until 31 December 2025.

    The current rate of interest is 0.5% therefore £100 investment will only attract £0.50 in interest.
    But to earn £5 in interest an investment of £1000 is required in today's GILTS market.

    It follows therefore that £100 GILT @5% in now worth £1000. The initial investment has rised by £900. This has only happened because the market interest rate has fallen from 5% to 0.5%

    IF the interest had risen the the value of the initial investment would have FALLEN.
Privacy Policy