Following the 1688
Glorious Revolution, with the founding in 1694 of the
Bank of England by Royal Charter,
King William III borrowed £1,200,000 from the bank's 1,268 private subscribers to bank stock in order to fund the
war with France. This marked the inception of what became a permanent or perpetual national public debt, with the Stock Exchange dealing in UK government securities. The Bank of England's debt securities were issued as certificates with gilded edges. With the war ongoing, and the
Great Recoinage of 1696 placing additional strain on the nation's finances, the
Committee of Ways and Means resolved to establish a National
Land Bank (as a rival to the Bank of England) to raise further capital; while the Land Bank scheme failed, a second provision in the National Land Bank Act of April 1696, empowering the
Exchequer to raise up to £1,500,000 in the security of 'indented
bills of credit', was a success: subsequently,
Exchequer bills remained in regular use as a source of Government revenue up until 1892. The next major public debt incurred by the government was the
South Sea Bubble of 1720, which took on a substantial portion of the national debt in exchange for trading privileges. The South Sea Bubble of 1720 and its aftermath led to a restructuring of government obligations and to a clearer separation between government debt and private joint-stock companies. Over the eighteenth and early nineteenth centuries, successive governments consolidated a variety of annuities and other instruments into fewer, larger issues that could be more easily traded. One important outcome of this process was the emergence of
consols, perpetual bonds that paid a fixed coupon with no fixed redemption date. Consols came to represent a large share of outstanding government debt and were widely held by domestic and overseas investors throughout the nineteenth century. Their perceived security and liquidity helped to underpin London’s role as a leading international financial centre. In 1927, the chancellor of the Exchequer,
Winston Churchill issued 4%
consols or securities, in part to refinance
World War I National War Bonds. In 2014, when they were to be repaid, these consols were valued at £218 million. The government sells bonds in order to raise the money it needs, like an IOU to be paid back at a future datemainly from five to thirty years in the futurewith interest. This form of government borrowing proved successful and became a common way to fund wars and later infrastructure projects when
tax revenue was not sufficient to cover their costs. Many of the early issues were
perpetual, having no fixed maturity date. These were issued under various names but were later generally referred to as
consols. Over time, the UK government moved away from undated securities towards dated bonds with specific maturities, which are now generally referred to as gilts. The modern gilt market developed from the mid-twentieth century onwards, with more systematic issuance programmes and, from the late 1990s, the establishment of the
Debt Management Office to manage the central government’s debt sales and associated risk on behalf of
HM Treasury. == Conventional gilts == Conventional gilts are the simplest form of UK
government bond and make up the largest share of the gilt portfolio (75% ). A conventional gilt is a bond issued by the UK government which pays the holder a fixed cash payment (or
coupon) every six months until maturity, at which point the holder receives their final coupon payment and the return of the principal.
Coupon rate Conventional gilts are denoted by their coupon rate and maturity year, e.g. % Treasury Gilt 2055. The coupon is expressed as an annual percentage of the gilt’s nominal value, which is typically £100. Payments are made in two equal instalments each year, so the holder of £1,000 nominal of a % gilt would normally receive £45 in coupon income per year, split into two payments of £22.50, until the bond matures and the principal is repaid. In the secondary market, conventional gilts may trade at a premium or discount to their nominal value. When market interest rates fall below the coupon rate, the price of an existing gilt tends to rise above
par. When market rates rise above the coupon, the price tends to fall below par. The yield to maturity incorporates both the coupon income and any capital gain or loss on redemption.
Inverse relationship The relationship between gilt prices and interest rates is an inverse one. When gilt prices fall, the yield will be higher. Conversely, when gilt prices rise, the yield will fall. The inverse relationship is non-linear, often represented by an
outwardly bowed curve, and the inverse effect is not proportional. Due to the coupon rate remaining constant for conventional gilts, the price has to adapt in the secondary market in order to reflect the prevailing market conditions and to remain competitive in relation to new debt. Undated gilts are particularly sensitive to fluctuations in interest rates.
Price sensitivity and duration The degree to which a gilt's price fluctuates in response to interest rate changes is measured by its
duration. This sensitivity is influenced by both maturity and the coupon rate; generally, gilts with longer maturities or lower coupon rates exhibit greater price volatility when interest rates pivot. Consequently, long-dated gilts are significantly more susceptible to price swings than short-dated ones. Such volatility was a primary driver of the price collapses seen in long-dated gilts during the market volatility of autumn 2022, exacerbated by forced selling from
liability-driven investment funds.
Gilt names Historically, gilt names referred to their purpose of issuance, or signified how a stock had been created, such as % Conversion Stock 1999; or different names were used for different gilts simply to minimise confusion between them. In more recent times, gilts have been generally named Treasury Stocks. Since 2005–2006, all new issues of gilts have been called Treasury Gilts.
Trends The most noticeable trends in the gilt market in recent years have been: • Flight to quality during market stress: Conventional gilts are increasingly functioning as safe-haven assets, with investor demand intensifying during periods of acute financial instability or uncertainty in global equity markets. • Long-term yield compression: A substantial and persistent decline in market yields over several decades, driven by greater currency stability compared to the 1970s and more recently the perceived reliability of UK sovereign debt relative to certain other global government bonds. • A decline in coupons: Several gilts were issued in the 1970s and 1980s with coupons of ≥10% per annum, but these have now matured. • A large and prolonged increase in the overall volume of issuance as the
public sector borrowing requirement has increased. • An increase in the volume of issuance of very long dated gilts, partly reflecting demand from pension funds and insurance companies for long-term sterling assets. • Active balance sheet management: A large volume of gilts were repurchased by central government under its
quantitative easing programme, followed from 2022 by sales that reduced the Bank’s holdings as part of
quantitative tightening. • The growth of syndication: Large-scale syndicated gilt offerings have become increasingly common as a vehicle for high-volume launches, particularly for new benchmark securities. This was evidenced on 14 April 2026, when the Debt Management Office (DMO) sold a record £15.0 billion of a new 10-year gilt, the 4.875% Treasury Gilt 2036 (ISIN: GB00BWBR1N39). This sale attracted a record-breaking order book of £148.2 billion (nominal), making it the most oversubscribed syndicated gilt offering in history. The launch yield of 4.9158% was the highest for a 10-year gilt issuance since the
2008 financial crisis. == Index-linked gilts ==