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Bonds and Gilts
Find out which Bond or Gilt could help you unlock your money's potential.
Welcome to the world of bond and gilt investing, where stability meets opportunity.
Whether you’re a seasoned investor seeking to diversify your portfolio with government gilts or a newcomer looking to understand the nuances of corporate bonds, we provide the insights and tools necessary to navigate this essential asset class.
Start your journey towards a more secure financial future with us today.
What are Bonds and Gilts
What is an index-linked gilt?
An index-linked gilt differs from a regular gilt because its interest payments are linked to the current Retail Price Index in the UK. This means that the interest payment goes up or down in line with UK inflation.
You might use index-linked gilts to protect your income from inflation until the bond matures.
However, index-linked gilts often have a long time to run to reach maturity, and the buying/selling price in the meantime can go up or down, especially if inflation rates rise or fall a lot.
Some companies also offer index-linked corporate bonds, but they’re usually offered by governments.
What is a bond maturity date?
When you look at investing in a bond, the maturity date will be stated. This is the agreed end date of the loan, which is set when the bond is first issued and doesn’t change. The maturity date is when you will receive back the face value of the bond.
What is a bond coupon?
As well as its maturity date, you’ll also see something called the coupon stated on a bond’s information page. The coupon tells you what income you’ll receive from a bond each year you hold it, usually paid twice a year, until maturity.
The coupon is shown as a percentage of a bond’s face value, which is set when the bond is first issued and doesn’t change. What this means is, every year you hold the bond, you’ll receive income payments of a set amount of the bond’s original value.
For example:
If a bond is issued at £100 face value and pays a 1.5% coupon, you’ll get an income of £1.50 per year.
What is a bond yield?
A bond yield tells you how much income you’ll make on your investment in the next year, based on what you paid for it. When looking at buying a bond, you’ll see the bond yield as a percentage – this is the income payment shown as a percentage of the current market value.
The bond income is fixed and doesn’t change, but the price you pay for the bond can go up or down. This means the income you get compared to the amount you invested can be higher or lower.
For example:
A bond is issued at £100 face value and pays a 1.5% coupon, so the fixed income is £1.50 per year.
If you buy that bond at a market price of £80, the £1.50 income you receive that year is 1.9% of what you paid.
Therefore, the bond yield is 1.9%.
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