What are gilts? How UK government bonds work and why the pound watches them
By SendPay Business · · 2 min read
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Gilts are bonds issued by the UK government to borrow money. Investors lend the government cash, receive regular interest, and get their money back on a set date. They are issued by the UK Debt Management Office on behalf of HM Treasury.
Two main types
- Conventional gilts pay a fixed rate of interest, called the coupon, twice a year.
- Index-linked gilts adjust their payments in line with inflation.
Prices and yields
Gilts are traded after they are issued. When their price falls, the yield, or return a new buyer gets, rises, and the other way round. Yields reflect what markets expect for interest rates, inflation and government borrowing.
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Why the pound reacts
Higher gilt yields can attract foreign money and support the pound. But when yields jump because investors are worried about government borrowing, as in the UK in autumn 2022, the pound can fall at the same time.
Where SendPay fits
SendPay platforms let customers hold GBP, EUR and USD and exchange between them at a fee the platform owner sets, powered by licensed partners. SendPay doesn't offer trading.
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Questions people ask
How do I work out a bond's yield?
Current yield and yield to maturity from the coupon and price, free.
Bond yield calculator →Is the yield curve normal or inverted?
Draw a yield curve from 3 months to 30 years.
Yield curve calculator →What is quantitative easing?
A central bank buying bonds to push down borrowing costs.
Quantitative easing →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.