Gilt-Edged Securities
Candlefocus EditorThe term “gilt-edge” has its origins in British history, when the Bank of England first started issuing the certificates printed on paper stock with gilded edges. These certificates allowed the Bank of England to raise revenue to support their new initiative of providing the public with a secure source of credit, ultimately helping to boost the British economy and allow England to emerge as a great financial power during the 18th and 19th centuries.
Today, gilt-edged securities are a major component of the global debt market, having become one of the most popular long-term investments for investors seeking fairly low risk and stable returns. Although the returns on gilt-edges securities are generally lower than those of other investment options such as stocks and bonds, investors favor them because of their higher liquidity and potential for a respectable return.
Primarily issued in the U.K. by the Bank of England, gilt-edged securities are the most prestigious type of debt security, paying interest at a fixed rate. They possess several key qualities that set them apart from other debt instruments, such as their high credit quality, low risk of default and maturities that are usually in the range of 15-30 years. The Bank of England has traditionally issued gilt-edged securities in denominations of £50, £100, and more recently in £1,000 – enabling the public and institutional investors to purchase the securities in smaller amounts.
Given their safe investment qualities, Gilt-edged securities are a particularly attractive option for pension funds and other investors who seek to preserve the value of their investments over the long-term. Nonetheless, the absolute returns on these securities can be somewhat tax sensitive, and investors should understand the overall returns offered compared to other investment opportunities before deciding to invest in Gilt-edged securities.