What is the difference between a gilt edged bond and a regular bond?

By Steven Merkel AAA
A:

A gilt edged bond is a high-grade bond issue. The term "gilt" is of British origin and originally referred to debt securities issued by the Bank of England. Gilt edged bonds traditionally applied to bonds issued by governments of the United Kingdom, South Africa and Ireland. However, the term "gilt edged" bonds evolved and now describes global bonds issued by companies or governments that have demonstrated long-term ability to earn good profits, prove stability and consistently pay bondholders on schedule.

Major independent credit rating services Moody's and Standard & Poor's research the financial health of bond issuers, including issuers of municipal bonds, and assign ratings to the bonds being offered. A bond rating helps investors assess credit quality in comparison to other bonds. For a bond to be categorized as "gilt edged" on Standard & Poor's rating scale, for example, it must fall into one of the top four rating classes AAA, AA, A or BBB, which means the bond is investment-grade. Ratings of BB, B, CCC, CC or D would be considered more speculative and, in the case of the "D" level, in default.

"Regular bond" is a very generic term used to describe bonds that are corporate, municipal, high-yield, mortgage, private issue and government in nature. Bonds in this category include high-grade bonds, such as gilt edged, but also the more speculative, and riskier, bonds that fall below investment-grade.

(For more on this topic, read Bond Basics: Introduction and What Is a Corporate Credit Rating?)

This question was answered by Steven Merkel.

RELATED FAQS

  1. Does my debt-to-income (DTI) ratio affect my credit score?

    Though closely related, your debt-to-income ratio doesn't affect your credit score as directly as you might think.
  2. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  3. Will getting a student loan deferral hurt my credit score?

    You may not be able to afford to pay your student loans, but the long-term consequence to your credit score be disastrous.
  4. How does bouncing a check affect my credit score?

    Learn the many indirect effects on your credit score when you bounce a check.
RELATED TERMS
  1. Impact investing

  2. Promotional CD rate (Bonus CD rate)

    A limited-time offer of a higher rate of return on a certificate ...
  3. Direct Bidder

    An entity that purchases Treasury securities at auction for a ...
  4. Indirect Bidder

    An entity that purchases Treasury securities at auction through ...
  5. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  6. Insurance Company Credit Rating

    The opinion of an independent agency regarding the financial ...
comments powered by Disqus
Related Articles
  1. As Boomers Slow Down, Will The Economy ...
    Investing News

    As Boomers Slow Down, Will The Economy ...

  2. Invest In Emerging Market Bonds With ...
    Bonds & Fixed Income

    Invest In Emerging Market Bonds With ...

  3. Strategies For Debt Consolidation Loans
    Credit & Loans

    Strategies For Debt Consolidation Loans

  4. A Primer On Preferred Stocks
    Bonds & Fixed Income

    A Primer On Preferred Stocks

  5. Mortgage Rates To Rise, But When And ...
    Investing Basics

    Mortgage Rates To Rise, But When And ...

Trading Center