Bond investors can achieve security and financial benefits

A BOND is a form of loan, or IOU.

The issuer, or borrower, owes the holder, or lender, a debt and must pay them interest (the ‘coupon’) and/or repay the principal (the original amount lent) at a later date, termed the ‘maturity date’.

Bonds provide the borrower with funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure.

A gilt is a UK Government bond, issued by HM Treasury and listed on the London Stock Exchange. As investment, they are considered totally secure, as the British Government has never failed to make interest or principal payments on gilts as they fall due.

A conventional gilt guarantees to pay the holder a fixed cash payment (coupon) every six months until the maturity date, at which point the holder receives the final coupon payment and the return of the principal.