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.

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