How To Buy UK Gilts & Government Bonds: Best Platforms, ETFs & Risks

Home > Investing > How To Buy Gilts
By /
Buying gilts has become more popular among investors as the economy and interest rates have seen increased volatility. In this guide, we explain how to buy Government Gilts, what they are, where to buy them and the potential risks and rewards of buying “gilt-edge” government bonds.

❓Methodology: Our experts chose what we think are the best investment accounts for buying gilts based on:

  • Over 30,000 votes and reviews in the coveted Good Money Guide annual awards
  • Our own experiences testing the gilt investment accounts with real money
  • An in-depth comparison of the features that make them stand out compared to alternative investing platforms for buying gilts
  • Our exclusive interviews with the gilt investment account company CEOs and senior management

How To Buy UK Government Gilts

You can buy UK Government bonds either directly from the DMO or through various bond brokers (see here for US ones) and investment platforms.
Time Needed: 5 minutes
Minimum Cost: 100 GBP

Basic Requirements:

- Computer or Mobile Phone
- Internet Connection.
- Money

Specific Requirements:

- Stock Brokerage Account
- Time for coupon payments
- Acceptance Gilts may go down in price

Steps to buying gilts

Step 1: Search for a gilt
Search for a Gilt on an investment platform like AJ Bell that fits your investment criteria and look up the symbol for that instrument (for example TR60 for the 4% Treasury Gilt 2060).
search for gilts
Step 2: Check terms
Be careful to note the coupon payment (normally in percentage), maturity date, and current prices.
gilt terms
Step 3: Enter a buy order
The price you purchase will determine your overall return. Gilts are issued at £1, but go up and down based on the Bank of England interest rates and how risky they are considered.
buy gilts
Step 4: Wait for maturity
Gilts are redeemed by the Treasury at £100 (known as “par”). Gilt investors make money via a combination of coupons and capital gains at maturity.
gilt purchase

Buying Gilts at Auction

In February 2024, Hargreaves Lansdown and Interactive Investor two of Britain’s largest stockbrokers, and direct-to-consumer investing platforms, opened up the UK Gilt-edged or government bond market to retail traders and savers.

HL & II are partnered with one of the UK’s largest domestic market makers, Winterflood Securities, to offer retail traders and investors access to DMO auctions for the first time.

How does the process of buying Gilts at auction work?

Hargreaves Lansdown and Interactive Investors are now accepting orders from clients for the forthcoming issue of Treasury bonds.

Crucially they will not pay any commission or dealing fees on their order, unlike trading Gilts in the secondary market.

Retail investors will only be able to participate in auctions for new issues and not so-called Taps, which are additional issues of bonds already in the market, however, that may change in future.

Gilts can be held tax-free within both ISAs and SIPPs, something that’s likely to appeal to long-term retail investors and savers.

Tim Jacobs, head of primary markets at Hargreaves Lansdown said:

“We think there will be significant demand (and) It’s another example of retail investors being taken seriously- they are finally getting a seat at the table.”

Whilst Sir Robert Stheeman, the CEO of the UK DMO said:

“We value the importance of having as diverse an investor base as possible and this initiative will provide retail investors with an additional opportunity to access gilts.”

Gilts issued through the auction process can often come at a small discount to comparable existing issues in the secondary market.

A benefit that until now has been exclusive to banks, brokers and their institutional clients.

The new initiative comes at a time when government bond issuance is on the up and brings the country into line with peers in Europe and North America.

What are Gilt auctions?

Gilts are effectively government-backed IOUs.

Via Gilt issuance the UK government borrows money from the financial markets, paying an annual rate of interest for the duration of the loan.

Repaying the principal, to the lenders, on the maturity of that loan.

New issues of Gilts are bought to market by the DMO under an auction system, in which investors bid for the bonds at a particular yield or interest rate.

The pricing of those bids will depend on a variety of factors including:

  • Underlying interest rates and swap market spreads
  • The supply and demand of Gilts, both those in issue and those in the pipeline
  • Sentiment among investors in the fixed-income markets

Alternative ways to buy Gilts:

If you are only interested in speculating on the price of gilts, then Saxo or IBKR offer Gilt derivatives.

  • Saxo – Saxo is for advanced and professional investing. Bond dealing commission: 0.2% to 0.05%. You can only trade Gilt, futures or ETFs on Saxo Trader GO.
  • Interactive Brokers – You can’t trade individual UK gilts on the IBKR portal, but you can buy Gilt ETFs, which give you access to a range of Gilts.

Alternatively, you can also buy and sell leveraged gilt funds. For example, the Wisdomtree Leverage 3x 10-year Gilt ETF (3GIL) is a high-octane vehicle for traders. The fund moves three times the daily movement of the Long Gilt Rolling Future Index. For obvious reasons, this ETF is not really suitable for every trader, especially investors with conservative financial objectives.

Important factors to consider when buying gilts

When we talk about buying government bonds like gilts, we focus on a few important factors, like:

  • Current yields – how much is the bond offering investors now?
  • Maturity – how many more years do the debt instrument last?
  • Credit ratings of the borrowing entity – is the organisation financially viable and has the means (taxes) to repay the debt?

As you can see above, gilts of different maturities offer different yields.

Assuming the credit rating of the UK government remains strong for the time being, which it is (see below), the two important factors are yield and maturity. How long do you intend to hold the debt for? Is the yield compensating investors sufficiently for the risk?

Source: worldgovernmentbonds.com

Recent data from bond brokers like Interactive Investor show that investors are picking up the near-term gilts (those maturing within 24 months). Yields are high; holding period short. A good parking place for surplus capital.

More crucially, in this volatile market there are two additional factors to consider:

  • Trend of interest rates – Will interest rates drop further in the coming months? If yes, it tends to buoy gilt prices.
  • Real interest rates – Will nominal rates compensate investors enough for the still-positive inflation?

Inflation this year (2024) has fallen to about 2 percent (1.7% in September ’24).  This led to a couple of Bank of England rate cuts (latest 25bps cut in November) to match the fall in inflation. Wide volatility in economic trends are causing huge changes in financial markets. Against this backdrop the central bank is cautious not to cut too aggressively in case inflation rebounds.

Gilt ETFs for your portfolio

Average investors need to diversify. In doing so, it reduces the overall portfolio risk. Asset diversification balances the risk.

With near-term gilt yields (3-6 months) now at 4-5 percent, interest in the sector is high. However, instead of buying individual gilts, a portfolio of gilts may be more appropriate for some investors.

For example, the iShares 0-5 year Gilt (IGLS) is an exchange-traded fund (ETF) that holds a portfolio of gilts with maturities ranging from 0 to five years. According to its factsheet, more than two-fifth of IGLS’s £3.1 billion gilt portfolio matures within 24 months. A bond ETF, like many equity ETFs, may track a bond index. Here IGLS tracks the “FTSE UK Conventional Gilts – Up To 5 Years Index“.

From a high of 135, the ETF plunged to 122 due to the surging interest rates before staging a recovery rally. Recent price action has flatlined due to a modest rise in interest rates. Right now, the ETF’s yield-to-maturity fetches about 4 percent.

Another ETF that may interest readers is the iShares Gilt ETF (IGLT). This £3.1 billion bond fund (factsheet here) follows the “FTSE Actuaries UK Conventional Gilts All Stocks Index (link)”.

There is another sector that may be worth a look – index linked gilts. These bonds are linked to the price index Retail Price Index (PRI). Coupons and principal of the bonds are adjusted according to a set formula using the RPI index. These adjustments help to offset the erosion of buying power of capital. You can find out more about index linked gilts from the Debt Management Office (DMO).

There is a bond ETF that holds just indexed linked gilts. This is the £718 million iShares index-linked Gilt ETF (INXG, factsheet here). Due to the long-maturity of its gilt holdings (one-third in 20+ year maturity), the bond fund is particularly volatile. In 2022, the ETF’s total return was a shocking -34 percent. In the US, the equivalent is the TIPS Bond ETF (TIP).

How do government gilts work?

Gilts are government bonds, which is a financial instrument with a promise – a promise to pay certain sums periodically (‘interest’) and the original capital in the future. In this case, the debtor is the UK government.

It works like this. The UK government borrows money from the market to spend; it then raises revenue from the economy via taxes; and uses the tax revenue to repay interest and capital to the creditors.

Sometimes, the government will use new borrowings to retire old borrowings when it is cheaper to do so. The most recent statistics (April 2024, data published annually) show the total UK debt borrowings at the end of 2023 to be £2.7 trillion. As a percentage of UK’s GDP, this ratio is about 101 percent (see below, recent report). Fiscally-prudent investors will think this is too high. Germany, they point out, has the debt-to-GDP ratio of about 64 percent. But as long as the market thinks the UK government has the ability to re-finance these debt instruments, there is no reason to panic.

Source: ONS (Apr 2024, annual figures)

How safe are government gilts?

Not all sovereign debtors are equal. What differentiates sovereign bonds are the rate of interest, collateral, duration, debt levels, and the credibility of borrowers.

Another important point is the absence of military conflicts in that region, since conflicts will disrupt trade, investments and capital flows.

Creditors certainly want to borrow from sovereign governments that can repay. This ability to repay is measured crudely by sovereign credit ratings. Third-party professional firms called rating agencies (Standard & Poor’s, Fitch, and Moody’s) assigned these ratings to nearly all governments that issue bonds. The UK has enjoyed good ratings in recent years. The chart below compares the S&P sovereign ratings across the world. The UK is currently double A investment grade (2024).

In September 2024, Fitch reaffirmed UK’s sovereign ratings at AA-.

Source: S&P/Wikipedia (March 2024) – click link and see individual rating changes

What is the relationship between gilt yields and price?

The relationship between bond yield and price is simple: They move in the opposite direction. Look at the chart below. Here I use a US bond ETF (IEF) as an example.

As US bond prices dropped (blue line), the 10-year bond yield rose (orange line). In other words, the higher the bond yield, the lower the price.

Generally speaking, shorter-maturity government bond yields (maturities of less than two years) track the central bank policy rate closely.

This means that as central bank raises the policy rate, these 0-2 year yields rise too – and vice versa. Longer maturity bonds, however, may not track the policy rate that closely for a variety of reasons, including inflation expectations.

  • Further reading: You can read more about how bonds work here in our bond guide.

Bonds versus gilts

You may also be interested in:

WiseAlpha is Crowdfunding Again
WiseAlpha’s latest crowdfunding round surpasses £350,000 target
Reducing ETF Dividend Withholding Tax
How To Reduce ETF Dividend Withholding Taxes In The UK
REITs
Best REIT Investment Accounts (Real Estate Investment Trusts) Compared & Reviewed
Scroll to Top