Gilts and bonds

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13. How to buy gilts and bonds

Buying gilts is reasonably straightforward. Like shares, you have to go though a broker.

Occasionally, the government has new gilt issues, and they are often sold direct to the public either at a fixed price or by tender or auction. Details of forthcoming issues can be found at the website of the Debt Management Office (www.dmo.gov.uk).

The advantage of buying a new issue of gilts is that there is no dealing commission.

Instructing your broker to buy or sell gilts is similar to instructing him on shares:

• You ask for what the current market price is on a stock.
• He looks at the prices quoted on screen by the gilt-edged market-makers (GEMMs) and tells you both the bid and ask prices per £100 of nominal stock.
• You instruct him to go ahead, either at a particular price or 'at best'.

If your broker uses a service known as Bondscape, he will also be able to do a search for you for bonds fulfilling specific criteria e.g. yield, maturity date, credit rating. This can help narrow down your selection process.

• Your broker executes the trade on your account.
• You receive a contract note from your broker in the post. Apart from dealing commission, which may be a flat fee or a percentage of the deal value, the contract note may also show an adjustment for 'accrued interest' - the amount of interest that has accrued on the gilt since the last income payment. Your entitlement to the interest will depend on whether you buy inside or outside the 'ex-dividend' periods for the gilt. Click here for a diagram of who is entitled to a bond dividend depending on the purchase/sell date.

1. What are bonds? 2. Different types of issuer 3. Different types of bond 4. Bonds compared to shares 5. Bonds as tradeable instruments 6. Nominal yield 7. Calculation of current yield 8. Capital gains on gilts and bonds 9. Calculating the redemption yield 10. Factors which affect bond prices 11. Are bonds for you? 12. Selecting gilts and bonds 13. How to buy gilts and bonds 14. Unit trusts and bond funds 15. Keeping track of your bond investments 16. Tax 17. Conclusion

• First Steps in Bonds
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• Pricing Convertible Bonds