gilts, bonds, gilt, bond, gilts and bonds, gilts & bonds UK Gilts and bonds from Barclays Stockbrokers can earn you a predictable return at a low risk compared to shares. Find out more.
Gilts and bonds

UK Gilts & Government Investment Bonds

A useful way to diversify your portfolio, gilts and bonds offer steady, predictable returns but with risk to your capital

Gilts and bonds

Diversify your investment

Gilts and bonds can reduce your overall risk as, compared to shares, they tend to carry a lower level of risk. This is because if a company is wound up, bondholders will be paid before its shareholders, so in some cases there is less chance of losing your money. You need to accept though that the risk of loss still exists and that some bonds are more risky than some shares. It all depends on the financial strength of the issuer with those listed as investment grade generally considered to be more secure than those that are either sub investment grade or unrated.
 
The prices of gilts and bonds generally tend to move more predictably - and less suddenly - than those of company shares. Although this means you're less likely to make a quick profit, with some bonds there may be less chance that you will lose your money altogether. However as with all investments, nothing is guaranteed and you could lose all or some of your money.
 

How gilts and bonds work

When you buy a gilt or bond you lend money to the issuer for a fixed period, in return for a fixed rate of interest. 'Gilts' are bonds issued by the UK Government while most other bonds are issued by companies. Gilts are generally considered the safest type of bond, because it is considered unlikely that the Government will default on a debt.
 
The end date of a bond is called its maturity date. If you still own the bond when it matures, you get back the issue price (usually £100 per bond) which is generally the price paid by those who bought them when they were first issued. The market value will change between issuing and maturity based on the total return - the combination of all the interest payments and the price of the bond relative to its maturity value.
 
Occasionally the UK Government will issue 'double dated gilts' e.g. 12% Exchequer Stock 2013 - 2017. The government can choose to redeem these in whole or in part, on any day between the first and final maturity date.
 

Risks to consider

When investing in gilts and bonds - it is key that you consider the risk of the underlying company or government issuing the bonds.
 
In the case of UK gilts - these are issued by the UK government and it is the government's responsibility to repay capital on maturity and make interest payments throughout the term of the gilt. If the UK government had financial difficulty, then a gilt investment may not receive interest payments and capital may not be repaid at maturity.
 
In the case of corporate bonds - these are issued by listed companies to raise capital, which could be for a number of reasons (i.e. refinance existing debt, for new acquisitions or for technology improvements). Companies who issue corporate bonds will typically have an investment rating from a recognised ratings agency which evaluate the risk of default from the company. A guide to these ratings can be found here. If the underlying company issuing the corporate bond runs into financial difficulty, then the bond investment may not receive interest payments and your capital may not be repaid at maturity.
 

How to invest in gilts and bonds

Gilts and bonds are generally considered lower risk investments, though they do differ widely. Some bonds are very high risk - i.e. sub investment grade bonds. You can invest indirectly in gilts and bonds through funds and ETFs which hold these investments. If you're a more experienced investor, you may choose to invest directly into individual gilts or bonds. Our How to invest in gilts or bonds section explains more.
 

Index-linked gilt pricing

Online index-linked prices are calculated using a clean price from the London Stock Exchange, i.e. the price of the bond not including any interest accruing. The online price will not include the daily index ratio calculation, i.e. the adjustment made to take account of inflation This means your online value will show a different price/value to your paper valuation or statement.
 
The difference in prices will not affect the actual sale value of your index-linked gilt. If you require a price which includes the index ratio, please call our Dealing Team on 0845 601 7788*
 
Alternative Online index-linked prices are calculated using a clean price from the London Stock Exchange and do not include the daily index ratio calculation . This means the online price doesn't include any interest or inflation accruing on the gilt. Because of this, the online value will show a different price/value to your paper valuation or statement, which includes both interest and inflation accruing.

The difference in prices will not affect the actual sale value of your index-linked gilt. If you require a price which includes the index ratio, please call our Dealing Team on 0845 601 7788*
 

Why invest in gilts and bonds?

There are a number of advantages and drawbacks which you should consider carefully before investing.
 
Possible steady, predictable returns
 
When you buy a bond or gilt you know exactly how much to expect as a return. An individual bond typically costs £100. It has a stated rate of interest (the 'coupon') which it will pay every year for a set period. If you still own the bond at the end of this period, you get your £100 back. Of course there is the risk that the issuer may not be able to repay you at the end of the term.

For example, a five-year bond with a value of £100 and a coupon of 2.5% will pay you £2.50 a year for five years, after which you get your £100 back and keep the interest.
As with all investments, nothing is guaranteed and you could lose some or even all of you money.
 
Sell at any time
 
In practice it is unusual for individual investors to buy a bond when it is issued and hold it to maturity. You can buy and sell bonds on the market at any point during their life - the price will depend on the coupon, its relationship to interest rates at that point in time, how long it is until the bond matures and the perceived financial strength of the issuer.

For example, let's say you pay £100 for a new UK Government bond that pays 2.5% for five years. After two years interest rates have fallen to 1.5%. Your bond is now probably worth more than the £100 you paid for it, because it promises three further years of interest at 2.5% while new issues only pay 1.5%. However if interest rates were to rise above 2.5%, your bond would probably be worth less than the £100 you paid for it.

Pay no Capital Gains Tax

Any profit you make from buying and selling gilts (and some corporate bonds) is exempt from Capital Gains Tax. You may still pay Income Tax on the interest you earn in excess of your Personal Savings Allowance - unless your bonds are held in an ISA or other tax-efficient account. The value to you of this favourable tax treatment depends on your individual circumstances; if you don't pay Capital Gains tax, you won't get any benefit from this. Tax rules can of course change.

Remember, the price and value of all investments and their income can fluctuate. You may get back less than the amount you invested. How an investment performed in the past is not a guide to how it will perform in the future. If you are unsure whether gilts and bonds are right for you, please seek independent financial advice.

Ready to invest?

  • The value of your investments can fall as well as rise and you may get back less than you initially invested.
  • Investing is not for everyone, if you are unsure please seek independent financial advice.
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Remember:

  • The value of your investments can fall as well as rise and you may get back less than you initially invested.
  • Investing is not for everyone, if you are unsure please seek independent financial advice.

Ready to invest?

If you are unsure, please seek independent financial advice.

To buy gilts and bonds in your Barclays Stockbrokers investment account login or call us on 0845 601 7788* or 0141 352 3909

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