Fixed Income Bonds

What is a Bond?  In general terms, a Bond is a negotiable debt instrument issued by a borrower for a fixed period of time paying interest, known as the coupon, which is fixed at the issue date and is paid regularly to the holder of the bond until it is redeemed at maturity, when the principal amount is paid.

Although there are many types of Fixed Income asset classes, the two most common types for UK investors include UK Gilts and Sterling Corporate Bonds

Gilts (Government Bonds) are simply an acknowledgement of debt issued by the Government with the promise to repay the debt at some date in the future.  Over the life of the Bond, the holder receives interest, referred to as the coupon. 

On maturity (if applicable) the loan is repaid.  Gilts are the safest investment as, in theory, a Government cannot default.

Corporate Bonds – In much the same way that the Government finance their deficits through the use of debt, companies who wish to spend more than they currently have available may also borrow money through the issuance of bonds.

Bonds can be issued with a fixed charge (coupon) or a floating rate charge (linked to London Inter Bank Offered Rate – LIBOR) which are recorded with the Register of Companies.

Whilst Gilts have the best grade of investment status (AAA) measured by the credit rating agencies, Corporate Bonds can have varying degrees of ratings from Investment Grade to Sub Investment i.e. high yielding.  This can be measured by their ability to be able to repay their debt.

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