Bonds & Fixed Income
Gilts are bonds issued by the UK government. They are generally viewed as having lower credit risk than many corporate bonds, but their market prices can still move significantly as interest rates, inflation expectations and market conditions change.
Issuer
Issued by the UK government.
Maturity
Individual gilts normally have a defined maturity date.
Capital at risk
Prices can rise or fall before maturity.
Educational information only — not personalised advice. Capital is at risk.
Example
A simple illustrative example can make the mechanics easier to understand.
Illustrative example — not a current gilt or market quote
This is an educational example only. Repayment and coupon payments depend on the issuer meeting the gilt’s terms.
Mechanics
HM Treasury issues gilts to borrow from investors.
You purchase the gilt either when available at issue or in the secondary market.
Conventional gilts generally pay a fixed coupon according to their terms.
The principal is normally due for repayment at maturity according to the gilt’s terms.
Gilt types
Coupon and principal payments are defined in nominal terms according to the bond’s conditions.
Payments are adjusted according to the inflation-linking terms of the gilt.
Index-linked does not mean risk-free or guaranteed to preserve purchasing power in every circumstance.
Income measures
The interest rate specified in the gilt’s terms.
4% on £1,000 nominal value = £40 a year
What investors are currently willing to pay for the gilt.
A gilt can trade above or below its nominal value before maturity.
A measure of return that reflects the price being paid and the gilt’s cash flows.
Coupon and yield are not the same thing.
The coupon can stay unchanged while the market price — and therefore the yield — moves.
Price and yield
When the market price changes, the return implied by the gilt’s fixed cash flows changes too.
Gilt price ↓
Yield generally ↑
Gilt price ↑
Yield generally ↓
Market drivers
These factors can interact. This is orientation, not forecasting.
Changes in expected Bank of England rates can affect market yields and gilt prices.
Changes in expected inflation can affect the value investors place on fixed future payments.
Longer-dated gilts are often more sensitive to rate changes.
Investor demand for government debt can change market prices.
Changes in expectations about growth, inflation, government borrowing and market conditions can influence gilt markets.
Interest-rate sensitivity
The date when the gilt is due to repay principal according to its terms.
A measure commonly used to understand how sensitive a bond or bond portfolio may be to changes in interest rates.
Generally less sensitive to interest-rate movements.
Generally more sensitive to interest-rate movements.
Lower credit risk does not mean low price volatility.
Risk
Gilts can still lose money. Lower credit risk does not remove market-price or inflation risk.
Gilt prices can fall when market interest rates or yields rise.
Fixed coupon payments can lose purchasing power when inflation rises.
Selling before maturity can crystallise a gain or loss depending on the market price.
Long-dated gilts can be particularly sensitive to changes in yields.
Market spreads and trading conditions can affect the price you receive when buying or selling.
Compare structures
Neither structure is automatically better. They differ in maturity behaviour, diversification and how capital is returned.
| Feature | Individual gilt | Gilt fund / ETF |
|---|---|---|
| What you own | A specific UK government bond | Units/shares in a portfolio of gilts |
| Maturity | Defined maturity date | Fund normally has no single maturity |
| Coupon | Defined by the gilt | Portfolio income/distributions |
| Diversification | One or selected gilts | Usually many gilts |
| Price movement | Market price moves before maturity | Fund price/NAV moves continuously |
| Principal at maturity | Normally due according to the gilt’s terms | No single maturity-date repayment of your original investment |
| Duration | Determined by chosen gilt | Portfolio duration changes as holdings change |
What you own
Maturity
Coupon
Diversification
Price movement
Principal at maturity
Duration
Access
Availability varies by gilt and platform. Some retail investors may be able to buy certain gilts through a broker or platform, or obtain exposure through gilt funds and ETFs.
Some platforms and brokers allow retail investors to buy individual gilts.
Some gilts may be available to investors when they are issued, depending on the distribution route.
A fund or ETF provides diversified exposure to a portfolio of gilts rather than one specific maturity.
Availability varies. Not every platform offers every gilt.
Checklist
Use this as a general checklist — not personalised investment advice.
UK tax
Tax treatment depends on how an investment is held and your circumstances. Different rules can apply to income, gains and tax-advantaged wrappers, and tax rules can change.
Eligible fixed-income investments may be held through tax-advantaged wrappers where the platform and product allow it.
Related
Gilts are issued by the UK government. Corporate bonds are issued by companies and generally involve different credit risk.
FAQs
Educational answers on gilt mechanics and risk — not personalised advice.
Related
Educational information only. Not personalised advice. Capital at risk where you invest.
Last reviewed: 26 August 2026
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