What is a Gilt?
Gilts are bonds issued by the UK government to raise funds from investors. These securities are considered low-risk investments because they are backed by the UK government. Gilt holders receive regular coupon payments, which represent the interest earned on the bond.
Gilts come in various forms, including conventional gilts (which pay a fixed coupon), and index-linked gilts (where the coupon and principal are linked to inflation).
What the Gilt market tells us about the economy
While the coupon rate remains constant, the market price of gilts can fluctuate based on expectations of future interest rates.
By observing the fluctuations in gilt prices and analysing the yield curve, economists and investors can gain valuable insights into market expectations about future interest rates, inflation, and overall economic growth. This information can be used to inform decisions about investments, monetary policy, and economic forecasting.