What are government bonds?
Government bonds are known as gilts in the UK and are an investment vehicle that provides a fixed rate of return until their expiry. Gilts are a loan from the bondholder to the government. The issuing government pays a fixed interest rate to the investor until the bond reaches its maturity date. When the maturity date is reached, the government pays the bondholder the face value of the bond.
Government bonds pay a steady income from the gilt's coupon rate (the fixed payment of interest) to the investor. They also provide insight into the market sentiment for the issuing country, as interest rates, inflation rates and currency strength all impact bond prices. Read more about bond trading.