Definition
Government Issued Long Term (GILT) refers to a category of fixed-income securities issued by the British government. These securities are considered low-risk investments because they are backed by the government. Gilts typically pay a fixed rate of interest until maturity, at which point the face value of the bond is repaid to the investor. This characteristic makes them attractive to risk-averse investors seeking stable and predictable returns.
Examples
- 10-Year Treasury Gilt: A bond issued by the UK Treasury with a fixed interest rate over a period of ten years.
- 35-Year Gilt: A long-term government bond that matures in 35 years, paying a fixed interest rate semi-annually.
- Indexed-linked Gilt: A government bond where the interest payments and the principal amount are adjusted in line with inflation, offering protection against inflation.
Frequently Asked Questions (FAQs)
What are the primary benefits of investing in gilts?
Gilts are considered low-risk investments as they are backed by the British government. They offer a fixed interest rate, which provides a predictable income stream. They also have a relatively high degree of liquidity.
How can I purchase gilts?
Gilts can be bought directly from the UK Debt Management Office (DMO) or through a brokerage firm. They are also available on the London Stock Exchange.
Are there different types of gilts?
Yes, there are Conventional Gilts, which pay a fixed interest rate; Index-Linked Gilts, where interest and principal adjustments align with inflation; and Undated Gilts, which have no set maturity date.
Can gilts lose value?
While gilts are considered low risk, they can still lose value if sold before maturity, particularly if interest rates rise, which can cause the price of existing gilts to fall.
How is the yield on gilts determined?
The yield on gilts is determined by the fixed interest (coupon) payments relative to its current market price. If the gilt is bought at a discount to its face value, the yield will be higher than the coupon rate.
Related Terms
- Bond: A debt investment in which an investor loans money to an entity that borrows the funds for a defined period at a fixed interest rate.
- Coupon: The interest rate paid by bond issuers on the bond’s face value.
- Maturity: The specific date when the principal amount of a bond or other debt instrument is due and is to be paid in full.
- Yield: The income return on an investment, such as the interest or dividends received, usually expressed annually as a percentage based on the investment’s cost, its current market value, or its face value.
- Treasury Bill: A short-term government debt security with a maturity of less than one year, sold in installments through the DMO.
Online References
Suggested Books for Further Studies
- “The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More” by Annette Thau
- “Bonds: The Unbeaten Path to Secure Investment Growth” by Hildy Richelson and Stan Richelson
- “Fixed Income Securities: Tools for Today’s Markets” by Bruce Tuckman and Angel Serrat
Fundamentals of Government Issued Long Term (GILT): Investment Basics Quiz
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