A gilt is a UK government bond that’s denominated in British pounds. They’re issued by the Debt Management Office (DMO) on behalf of HM Treasury.
There are two types of gilt. Conventional gilts (which make up about three quarters of gilt issuance) guarantee to pay holders a fixed cash payment known as a coupon every six months, until the bond matures, at which point the holders gets a final coupon and the initial investment back. Index-linked gilts, making up the other 25% of issuance, have coupons that are adjusted in line with the Retail Price Index (RPI) measure of inflation.
It’s sometimes said that they’re called gilts because the original paper bonds that were issued were gilt edged, but the DMO says it is a reference to the security of gilts as an investment – the British government has never failed to make interest or principal payments on gilts when they’ve fallen due.
