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Gilts are UK government bonds issued to raise money for the running of the government. They carry almost no credit risk i.e. you will get your money back at maturity and the UK government is very unlikely to default on its debt. However, their prices do fluctuate as yields rise (which makes prices fall) and fall (which makes prices rise).
Cash Flows – What You Get
If you buy a gilt you are entitled to the income it generates and if you hold it until it matures you are entitled to receive the amount of face value (also called redemption value or par value) back on the maturity date. To make this more concrete let’s take an example. Let’s say you bought TY25, a bond that pays a coupon of 3.5% and which matures on the 22nd of October 2025. The day you bought the bond was October 11th 2023.
- Clean Price The clean offer (buying) price that you were quoted by your broker is £97.51
- Dirty Price You will pay the dirty price to the current bond owner to compensate them for the coupon they’re giving up. That adds about £1.64 to the price to give a dirty price today of £99.15
- Capital Gain That means you are paying £99.15 for every £100 of face value and this gives a guaranteed capital gain of £0.85 between now and the maturity date of 2025-10-22
- Coupon Each six months you will receive £1.75 (half the annual coupon) for each £100 of face that you own paid in April and October
- Maturity Date On the maturity date you will receive the final coupon of £1.75 and £100 face back in your brokerage account
- The yield will have a capital gain and an income that add up to the yield of 4.8% i.e. roughly Yield To Maturity = Capital Gain + Income = 1.3% + 3.5% = 4.8%
Most of the time you would own much more than £100 face value so you’d simply scale the numbers up accordingly, that’s just a quoting convention to make it very easy to turn percentages into cash amounts.
Gilt Table Tracker
The UK Gilt table is intended to make it clear which bonds are available and what you get if you buy them. Initially the table is sorted by the years to maturity of each bond but by clicking on the Years To Maturity and Yield To Maturity column headings you can change the sort order.
If you click on + you will get more detail on each bond. Two fields are links. If you click on the ISIN code (a unique identifier for each bond) it will launch a Google search for that ISIN and that usually includes the Debt Management Office’s prospectus for the bond. You can also search for the bond on your broker using this code. If you click on Calculate this starts up the Wolfram Alpha calculator. There you can see the yield to maturity for your bond with all the fields filled in for you. You can enter the clean price quoted by your broker as you buy the bond to quickly work out its yield to maturity at the instant you buy the bond.