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. Can retail investors buy commercial paper?

    Find out whether retail investors buy commercial paper, and learn about the restrictions that often prevent individual investors ...
  2. What are some common examples of marketable securities?

    Learn about marketable securities and the most common types of both debt and equity securities, including common stock, bonds ...
  3. How do investors calculate the present value of a future investment?

    Learn what present value is, how to calculate the present value of a future investment, and what formula investors use to ...
  4. What happened to Nathan Rothschild's estate after his death?

    Learn more about the Rothschild fortune and the business operations that brought this family substantial success in finance ...
RELATED TERMS
  1. Next Generation Fixed Income (NGFI) Manager

    A Next Generation Fixed Income (NGFI) manager is a fixed income ...
  2. Next Generation Fixed Income (NGFI)

    Next generation fixed income is an innovative approach to investing ...
  3. Prime Credit

    A credit score that falls into the range that is one step down ...
  4. Super-Prime Credit

    Consumers with super-prime credit are considered to have excellent ...
  5. Class 3-6 Bonds

    Several classes of noninvestment grade bonds held by an insurance ...
  6. Impact investing

You May Also Like

Related Articles
  1. Bonds & Fixed Income

    How to Diversify with Muni Bond ETFs

  2. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your ...

  3. Professionals

    Vanguard Readies Muni Bond ETF

  4. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long ...

  5. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and ...

Trading Center