Guilt-Edged Securities

Guilt-Edged Securities

Gilt-edged security is either a bond that a government issues or a bond that a top-quality company issues. It is the government stock on which interest payments will certainly be met and that will certainly be repaid at par on the due date. These are the stocks on which interest is absolutely safe. The top-quality company has a long record of good earnings. From the point of view of investment, these will never be unsecured. These are high-grade bonds issued by certain national governments and private organizations. It also has a consistent record of paying its debts and other obligations punctually. Therefore, investors know that the company is a reliable payer of interest and dividends. Initially, gilt-edged securities were ‘perpetual.’ In other words, they had no specific maturity date. So, the securities issued by the central, state, and quasi-governments are known as Government securities or gilt-edged securities. They are bonds issued by certain national governments.

“A term used to describe securities that are virtually risk-less. It has also become the accepted industry name for UK government bonds.” Long term government securities are known as government bonds or dated securities. They have a maturity period of five years, ten years, fifteen years, etc. These are bonds issued by the UK Government. The term is of British origin and then referred to the debt securities issued by the Bank of England on behalf of His/Her Majesty’s Treasury, whose paper certificates had a gilt (or gilded) edge. Some Commonwealth nations, including India and South Africa, also use the term when talking about government bonds.  However, when reference is made to “gilts”, what is generally meant is “UK gilts,” unless otherwise specified. Raising money via gilt-edged security selling became a popular and successful way of raising funds. Especially money that the country required to fund wars.

Gilt-edged securities originally had gilded edges, hence the name. These instruments got their names because the certificates were printed on paper stock with gilded edges. These are favored by investors who seek predictable returns, with little risk of default. Government guaranteed securities are those securities the income and capital of which are guaranteed by the Government. The rates of interest on these securities are relatively lower because of their high liquidity and safety. Colloquially, the term “gilt-edged” is sometimes used to denote high-grade securities, consequently carrying low yields, as opposed to relatively riskier, below-investment-grade securities.