March 20, 2026
In simple terms, bonds and gilts are ways to lend money in return for regular income and the promise of getting your capital back at the end of a set period. Many investors use them as part of a balanced investment approach to help meet long-term financial goals. In the UK, the government issues UK gilts via the Treasury, and the gilt market includes popular gilts traded by individuals and institutions.
As with all investments, values can change as gilt prices and bond yields move, and it’s important to understand how gilt yields work before deciding whether they’re a good investment for you.
At their core, bonds are a type of loan. When you buy a bond, you are lending money to a company or government in exchange for coupon payments (regular interest) and the return of your capital when the bond matures. This creates predictable cash flows for bondholders.
Bonds are a form of debt and are classed as securities. The issuer promises to make repayments at maturity and to pay interest on a coupon basis. You can hold bonds directly or through funds and investment accounts offered by providers such as banks or investment platforms.
Gilts are UK government bonds issued by the Treasury (often referred to as Treasury gilts). When you buy a gilt, you are effectively lending to the UK Government. This is why gilts are often considered to have lower credit risk than corporate bonds, although their prices still move with the market.
The gilt market includes conventional gilts and index-linked gilts. When a gilt matures, the government repays the original amount invested. However, if you sell before maturity, the price you receive depends on market conditions and interest rates.
Conventional gilts and how they pay income
Conventional gilts pay a fixed coupon (interest) to investors. The return you receive depends on the price you pay and the redemption yield or yield to maturity if you hold the gilt until it matures. Gilt yields move as prices change in the market, so returns are not guaranteed if you sell early.
Index-linked gilts adjust payments in line with inflation, helping protect purchasing power over time.
There is a wide range of bonds available, including:
Each type comes with a different level of risk and potential return.
Returns from bonds and gilts come from coupon payments and price movements. Bond yields and gilt yields reflect the return available at current market prices. Measures such as yield to maturity and redemption yield help compare expected returns when held to maturity.
While bonds and gilts are often seen as lower-risk investments than shares, they are not risk-free. Key risks include:
Understanding the level of risk is essential before investing.
Inflation and interest rates directly affect bond prices. When rates rise, existing bonds can fall in value. Index-linked gilts can help protect income during periods of inflation. Timing and holding periods matter, especially if you may need to sell before a bond matures.
Bonds and gilts can support diversification by balancing growth assets such as shares. They can help smooth returns and provide steadier income within a wider investment portfolio. Holding bonds through funds can also spread risk across many issuers.
Whether bonds and gilts are right for you depends on your time horizon, tolerance for risk, and financial goals. They can support income needs and help manage volatility. Still, returns vary, and your tax bill may be affected depending on how you hold them (for example, outside tax-efficient wrappers such as ISAs, subject to your annual allowance).
Review how bonds and gilts fit within your overall investment mix, especially as markets change. Consider the role of duration, yields, and risk alongside your objectives. If you’re unsure, tailored investment advice can help you build a strategy aligned to your goals. If you’d like to discuss your options, call to arrange a conversation with an adviser.
Note: Market movements can be fast, even from one Friday to the next, so staying informed is important.
If you’re reviewing your portfolio or considering adding bonds or gilts, clear, independent financial advice can help you make informed decisions. Speak with a financial adviser to explore how these investments could support your financial goals.
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