explain in detail United Kingdom bond market with example and charts

Expert Solution

The bond market of United kingdom government is known as "GILTS". These bonds are generally sold through auctions by DMO (Debt management office).

Gilt is so trustworthy that government has never failed to repay .

The gilt coupon rate is paid bi annually which is every six months until the maturity date. Coupon are the interest rate paid on the bond for raising loan from other entiites like general public, institutional investors or non - institutional investors.

The debts are repaid in atmost 15 years by the UK govt. Although, UK govt has been spending hugely which has led to around 50 billion euros pe year as debt cost.

To pay off such humongous debt, govt needs to issue more bonds to pay of the previous accumulated debts which could make it look nothing less than an illegal scheme.

According to the DMO :

The Majority of the debt holders are;

Insurance companies and pension funds = 39.8%

Overseas investors = 35%

banks/households = 7.3%

Others = 17.8%

(Data taken from google)

(TradingEconomics site chart data)

The bond yield in this quarter has seen lowest bond yield currently. As you can see , bond yield hasfallen drastically from 0.8 in March 2020 to 0.22 in september 2020 . Not at all a good sign for bond investors.

jeff jeffy answered 2 years ago

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