Interactive Investor

Please remember, investment value can go up or down and you could get back less than you invest. The value of international investments may be affected by currency fluctuations which might reduce their value in sterling.

How bonds and gilts work

Bonds and gilts are typically low risk fixed income investments which can take pride of place in any portfolio. Corporate bonds are issued by corporations and gilts are bonds are issued specifically by the British government to borrow money.

There are different types of gilts but most will typically pay a fixed coupon biannually and mature on a set date in the future. Other options are Index-linked gilts which track the Retail Price Index (RPI) or you can buy undated gilts, where there is no fixed redemption date.

Bonds and gilts are normally issued at £100 each and pay back £100 on their redemption date, plus you’ll receive interest (the coupon) at a fixed rate each year until then. You can also trade them on the secondary market where the price will be typically dictated by market forces such as supply and demand as well as interest rates.

If you hold a bond until expiry it will be redeemed at its face value of £100 so a gain or loss on the principal holding will depend on whether you paid above or below £100 on the secondary market.

We offer bonds when new ones are issued. Visit our New Issues and IPOs hub to see what is currently available. 

Tax advantages

All gilts and some corporate bonds are exempt from capital gains tax (CGT). However, unless your bonds are held in an investment ISA or other tax-free wrapper products, you will still be liable to pay income tax on any interest you earn.

Risk warning

When buying bonds, you should consider the issuer’s credit rating and their ability to repay their debt. This will have a direct bearing on the value of the investment. Should the issuer default, they may not make interest payments or be able to repay your money and your initial investment is at risk.

Performance review: Q2 2022

Inflation spiking in many countries above 7% has rattled bond investors and seen new investors demanding higher yields, hence prices have been driven lower. Fixed income assets were under pressure before the war as we are in an environment of unsettlingly high inflation numbers, levels that have not been seen for more than a decade.

The situation has suddenly become far worse as the implications of Russia’s invasion of Ukraine on the supply chains of many commodities became more obvious. Inflation has been rising for a number of quarters, with shortages in many industrial segments driving prices higher, which is feeding through to CPI. While all strands of fixed income were weak, the worst performers were emerging market debt in US dollars, UK corporate bonds and UK Government Gilts. The least impacted, albeit still weaker, were, unsurprisingly inflation-linked bonds.

Performance (%)Q2YTD1 Year3 Years5 Years
Global Aggregate-0.54-3.99-3.59-1.690.79
Global Government-0.71-3.99-3.97-2.300.46
Global Corporate-0.84-5.66-4.98-0.751.58
Global High Yield-3.94-7.12-6.30-0.272.14
EURO Corporate-5.73-10.20-12.70-4.80-1.41
Sterling Corporate-6.66-12.41-12.90-1.890.16
Global Inflation Linked-6.75-8.31-3.370.472.07
UK Gilts-7.42-14.06-13.60-3.43-0.75
UK Inflation Linked-18.17-22.80-17.33-4.21-0.51
Source: Morningstar. Total returns in GBP.

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