Another name for UK Government issued bonds; Government Bonds are regarded as low risk and one of the safest long-term investments. They provide a fixed rate of annual interest in return for a lump sum which is returned after an agreed period.
Government-backed stock known as ‘gilts’ are effectively loans made to the Government by investors. Much of the national debt is comprised of Government gilts, so when the Government needs to ‘borrow’ more, it simply issues a new gilt. Gilts provide income derived from interest payments and a final redemption. Inflation erodes away at the true value of the gilt’s redemption, while interest rates will make the gilts income appear more or less attractive. Broadly speaking, when interest rates rise, the value of the gilt will fall and vice versa. Many professional investors and fund managers invest part of their portfolio in gilts because they help them to spread risk and/or provide income.
Corporate bonds are similar to gilts and work in much the same way; however corporate bonds, as the name suggests, are issued by multinational companies as opposed to Governments. Companies do this as a cheaper form of borrowing than a bank loan that often offers better returns than Government gilts.