GILT

Gilts, or gilt-edged securities as they were originally known, are bonds issued by national governments, with around two-thirds of all gilts held by insurance companies and pension funds around the globe.

The term gilt originally referred to the gilded edge of debt securities that were offered by the Bank of England. However, the term has now become ubiquitous with debt securities offered by any country, although in the most part it still refers to securities issued by the British bank.

A typical gilt is a contract issued by the British government to pay the bearer a fixed six-monthly interest payment - known as a coupon - on a deposit until its maturity, providing a high level of financial security and regulated growth.

Gilts are traditionally denoted by their coupon rate and maturity year. For example, 4.5% Treasury Gilt 2055. In this way, investors have a clear understanding of the length and terms of a gilt contract.

Trends that have taken place in the gilts market over recent years include a general decline in the variety of gilts being issued, with a focus on maximising liquidity in global markets through the issue of large quantities of a small number of types of gilt.

Furthermore, many gilts were created and purchased by the UK government as part of its quantitative easing programme in order to help tackle rising inflation in the aftermath of the 2008 credit crunch and subsequent global economic downturn.

The most common type of gilt that investors can put their money into falls four categories - index-linked gilts, double-dated gilts, undated gilts and gilt strips.

Maturity of these products is set by the UK Debt Management Office, with terms of less than three years known as 'ultra short' and those of 50 years or more known as 'ultra long'. More typical lengths, however, are short contracts (three to seven years), medium (seven to 15 years) and long (15-plus years).