A gilt-edged bond, also known as a gilt or gilt-edged security, is a type of bond issued by the government, typically considered low-risk and reliable. The term “gilt” originates from the gilded edges of the bond certificates issued by the UK government in the past.

Key characteristics of gilt-edged bonds include:

1. **Issued by Governments:** Gilt-edged bonds are primarily issued by national governments. In the United Kingdom, for example, these bonds are issued by the UK government and are considered sovereign debt.

2. **Low Risk:** Gilt-edged bonds are often considered low-risk investments because they are backed by the government’s credit, and there is usually a very low probability of default. Governments have the power to tax and, in most cases, can print money to meet their debt obligations.

3. **Fixed Interest Payments:** Gilt-edged bonds typically pay a fixed rate of interest to bondholders. This fixed interest rate is known as the coupon rate, and bondholders receive regular interest payments over the life of the bond.

4. **Long Maturity Periods:** Gilt-edged bonds often have long maturity periods, ranging from 10 to 30 years or more. Investors who purchase these bonds are essentially lending money to the government for an extended period.

5. **Tradability:** Gilt-edged bonds are traded on financial markets, and their prices can fluctuate based on changes in interest rates and market conditions. Investors can buy and sell these bonds in the secondary market.

6. **Use in Benchmark Indices:** Gilt-edged bonds are commonly used as benchmarks for other fixed-income securities. The yields on these bonds are often used as reference rates for pricing other debt instruments.

7. **Considered “Risk-Free”:** In financial theory, government bonds from stable and creditworthy governments are sometimes considered “risk-free” assets because of the low likelihood of default. However, they are not entirely risk-free, as there is still interest rate risk and potential changes in market conditions.

Investors, particularly those seeking low-risk investments, may include gilt-edged bonds in their portfolios to preserve capital and receive a predictable stream of income through interest payments. The term “gilt-edged” is used more commonly in the United Kingdom, while similar low-risk government bonds issued by other countries may be referred to by different names, such as Treasury bonds in the United States or Bunds in Germany.