Gilt-edged securities are bonds issued
by some national governments. The term
is of British origin, and then referred
to the debt securities issued by the
Bank of England, whose paper
certificates had a gilt edge. Hence,
they are known as gilt-edged securities,
or gilts for short. Today the term is
used in the United Kingdom as well as
some Commonwealth nations, such as South
Africa and India. However, when
reference is made to "gilts", what is
generally meant is UK gilts, unless
otherwise specified.
Colloquially, the term "gilt-edged" is
sometimes used to denote high-grade
securities, consequently carrying low
yields, as opposed to relatively
riskier, below investment-grade
securities.
In 2002 the data collected by the
British Office for National Statistics
revealed that about two-thirds of all UK
gilts are held by insurance companies
and pension funds. Since 2009 large
quantities of gilts have been created
and repurchased by the Bank of England
under its policy of quantitative easing,
and in recent years overseas investors
have also been attracted to gilts by
their "safe haven" status.
The term "gilt account" is also a term
used by the Reserve Bank of India to
refer to a constituent account
maintained by a custodian bank for
maintenance and servicing of
dematerialized government securities
owned by a retail customer.
History 
The first fund raising that could be
considered a gilt issue was in 1694 when
King William III borrowed £1.2m to fund
a war with France via the newly created
Bank of England. The term "gilt" however
would not be used until the late 19th
century for these types of debt
securities.
This form of government borrowing proved
successful and became a common way to
fund wars and later infrastructure
projects when tax revenue was not
sufficient to cover their costs. Many of
the early issues were perpetual, having
no fixed maturity date. These were
issued under various names but were
later generally referred to as Consols.
Conventional gilts 
These are the simplest form of UK
government bond and make up the largest
share of UK government debt. A
conventional gilt is a bond issued by
the UK government which pays the holder
a fixed cash payment every six months
until maturity, at which point the
holder receives his final coupon payment
and the return of the principal.
= Coupon rate =
Conventional gilts are denoted by their
coupon rate and maturity year, e.g. 4¼%
Treasury Gilt 2055. The coupon paid on
the gilt typically reflects the market
rate of interest at the time of issue of
the gilt, and indicates the cash payment
per £100 that the holder will receive
each year in two payments.
= Gilt names =
Historically, gilt names referred to
their purpose of issuance, or signified
how a stock had been created, such as
10¼% Conversion Stock 1999; or different
names were used for different gilts
simply to minimise confusion between
them. In more recent times, gilts have
been generally named Treasury Stocks.
Since 2005-2006, all new issues of gilts
have been called Treasury Gilts.
= Trends =
The most noticeable trends in the gilt
market in recent years have been:
a substantial and persistent decline in
market yields as the currency has
stabilised compared to the 1970s and
more recently UK gilts are seen as a
safe haven compared to certain other
government bonds
a decline in coupons: several gilts were
issued in the 1970s with coupons of
around 15% per annum, but these have now
matured
a large and prolonged increase in the
volume of issuance as the Public Sector
Borrowing Requirement has increased
a large volume of gilts have been
repurchased by central government under
its quantitative easing programme
Index-linked gilts 
These account for around a quarter of UK
government debt within the gilt market.
The UK was one of the first developed
economies to issue index-linked bonds in
1981. Initially only tax-exempt pension
funds were allowed to hold these bonds.
The UK has issued around 20 index-linked
bonds since then. Like conventional
gilts, index-linked gilts pay coupons
which are initially set in line with
market interest rates. index-linked
gilts have been negative; but the
coupons for new issues have been
constrained to be at least +0.125%.)
However, their semi-annual coupons and
principal payment are adjusted in line
with movements in the General Index of
Retail Prices.
In September 2005, the UK Government
issued the longest ever index-linked
government bond, 1¼% Index-linked
Treasury Gilt 2055, maturing on 22
November 2055. Further ultra-long
index-linked bonds, maturing in 2062 and
2068, were issued in October 2011 and
September 2013 respectively.
= Indexation lag =
As with all index-linked bonds, there is
a time lag between the collection of
prices data, the publication of the
inflation index and the indexation of
the bond. From their introduction in
1981, index-linked gilts had an
eight-month indexation lag. This was so
that the amount of the next coupon was
known at the start of each six-month
interest accrual period. However, in
2005 the UK Debt Management Office
announced that all new issues of
index-linked gilts would use a
three-month indexation lag, first used
in the Canadian Real Return Bond market,
and the majority of index-linked gilts
now in issue are structured on that
basis.
Double-dated gilts 
In the past, the UK government issued
many double-dated gilts, which had a
range of maturity dates at the option of
the government. The last remaining such
stock was the 12% Exchequer Stock
2013-2017, a "rump gilt" with a
relatively small amount outstanding and
a very limited market, and this was
redeemed on 12 December 2013.
Undated gilts 
= Historical undated gilts =
Until late 2014 there existed eight
undated gilts, which made up a very
small proportion of the UK government's
debt. They had no fixed maturity date.
These gilts were very old: some, such as
Consols, dated from the 18th century.
The largest, War Loan, was issued in the
early 20th century. The redemption of
these bonds was at the discretion of the
UK government, but because of their age,
they all had low coupons, and so for a
long time there was little incentive for
the government to redeem them. Because
the outstanding amounts were relatively
very small, there was a very limited
market in most of these gilts. In late
2014 and early 2015 the government gave
notice that four of these gilts,
including War Loan, would be redeemed in
early 2015. The last four remaining
gilts, with coupons of 2.5% or 2.75%,
were redeemed on 5 July 2015.
= Proposed new undated gilts =
In May 2012 the UK Debt Management
Office issued a consultation document
which raised the possibility of issuing
new undated gilts, but there was little
support for this proposal.
Gilt strips 
Many gilts can be "stripped" into their
individual cash flows, namely Interest
and Principal which can be traded
separately as zero-coupon gilts, or gilt
strips. For example, a ten-year gilt can
be stripped to make 21 separate
securities: 20 strips based on the
coupons, which are entitled to just one
of the half-yearly interest payments;
and one strip entitled to the redemption
payment at the end of the ten years. The
title "Separately Traded and Registered
Interest and Principal Securities" was
created as a 'reverse acronym' for
"strips".
The UK gilt strip market started in
December 1997.
Gilts can be reconstituted from all of
the individual strips. By the end of
2001, there were 11 strippable gilts in
issue in the UK totalling £1,800
million.
Maturity of gilts 
The maturity of gilts is defined by the
UK Debt Management Office is as follows:
short 0–7 years, medium 7–15 years and
long 15 years +.
Gilts with a term to maturity of less
than three years are also referred to as
"ultra short", while the new gilts
issued since 2005 with a term to
maturity of 50 years or more have been
referred to as "ultra long".
GEMMA reference prices 
The UK Debt Management Office publishes
the Gilt-Edged Market Makers Association
reference price, a price collated by the
DMO from mid-market closing prices
submitted by each Gilt-Edged Market
Maker for those gilts in which it makes
markets.
See also 
List of government bonds
References 
