Government bonds or gilts are investments which can be freely traded and allow governments to tap the international money markets to fund the shortfall between what they spend and what they raise in taxes. These government bonds provide investors with a fixed rate of return .
Gilts are the popular name for UK government bonds.
Bunds is a similar term for government securities issued by the German government and US treasuries is the term used for similar instruments issued by the Federal Reserve Board in the United States. Every traditional gilt edged stock pays out interest twice a year and the amount they pay can be calculated by multiplying the face value of the holding by the coupon or rate of interest shown in the title of the gilt. There is little or no risk in holding gilt edged stocks as long as they are bought at a price which is below their repayment value of 100. The twice yearly interest payments are guaranteed by the UK government and the repayment value is similarly guaranteed. Gilt edged stocks are used mainly by insurance companies, pension funds, charities and trusts, all of whom generally want safe, high yield ing investments.