United Kingdom

Debt
Management
Office

UK Government Securities: a Guide to ‘Gilts’

Tenth edition June 2012
 UK Government Securities: a Guide to ‘Gilts’

United Kingdom
Debt
Management
Office
Eastcheap Court
11 Philpot Lane
London EC3M 8UD
www.dmo.gov.uk
 Contents

Introduction .................................................................................................2 Main types of gilts: Gilt-edged market makers (GEMMs) ...................................17

Foreword by the Chief Executive, Conventional ...................................................................................10 Gilt market trading conventions and registration ......18
Robert Stheeman......................................................................................3
Index-linked .......................................................................................11 Settlement of gilt trading (Euroclear) ..................................19
Developments in the gilt market ................................................4
• 3-month lag .............................................................................12 Short-term debt instruments: Treasury bills .....................19
Objective of UK Government
debt management...................................................................................6 • 8-month lag .............................................................................13

Why the UK Government issues gilts .....................................7 Annexes

Other types of gilts:

Future financing projections ..........................................................8 A. Gilts in issue at 31 March 2012 ...................................20

Double-dated (and ‘rump’ gilts) .......................................14

Gilt market turnover/overseas holdings ..............................9 B. List of GEMMs at 31 March 2012..............................22

Undated ..............................................................................................14
C. Taxation (for overseas investors) .................................23
Gilt market operations
D. Gilt strips ....................................................................................24
Gilt auctions .....................................................................................15
E. The DMO website, www.dmo.gov.uk......................25
Syndicated offers ...........................................................................16
F. Contacts .......................................................................................26
Mini-tenders .....................................................................................16
G. DMO Wire Service pages ...............................................27

St Paul’s Cathedral from

the Millennium Bridge.

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UK GOVERNMENT SECURITIES

Introduction UK Government Securities: gilts

A gilt is a UK Government security issued by HM Treasury.

The term gilt (or gilt-edged) is a reference to the primary characteristic of
gilts as an investment: their security. The UK Government has never failed
to make interest or principal payments on gilts as they fall due.
The UK Government has the highest, AAA credit rating from all major
credit rating agencies.

This brochure is intended to help those who have an As gilts are marketable securities, their market value may
interest in investing in gilts and would like to know more go down as well as up. The DMO (as agent of HM
about the essential features of the instruments. It does not Treasury) issues gilts to the market on behalf of the
constitute an offer to buy or sell securities, nor does it offer Government of the United Kingdom, and holds gilts itself
investment advice. for market management purposes.
The UK Debt Management Office (DMO) has tried to The DMO does not in any way guarantee the liabilities of
ensure that the legal and factual information is accurate, the financial or commercial institutions referred to in this
but this brochure cannot be a comprehensive statement of brochure.
all the intricacies of law and practice relating to gilts, nor
can it take account of the circumstances of every investor.
Therefore, reliance should not be placed on the brochure:
investors who want advice on which gilt or other
investment may be best suited to them, or on trading Historic Billingsgate fish market.
strategies, should consult a professional advisor. Except
where specifically indicated, the brochure describes the
position as at 31 March 2012. The reader should not
assume that anything described in it is still accurate at a
later date.

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 UK GOVERNMENT SECURITIES

Foreword by the DMO Chief Executive, Robert Stheeman

This brochure is intended to introduce the UK gilt market to those thinking of investing in UK Government bonds. In the
past few years the gilt market (which can trace its ancestry back to the late seventeenth century) has continued to evolve
into a modern dynamic market.
2011-12 has again seen the DMO successfully deliver the Government’s financing programme, in what has continued to be
a challenging financial market environment. The total amount of gilt financing we delivered, £179.4 billion, was the second
highest on record, and represented the fourth successive year of elevated financing requirements.
To help ensure that such significant volumes of sales can be absorbed effectively by the market, and in particular to provide
higher amounts of long-dated conventional and index-linked gilts than would otherwise be possible, we have continued to
use supplementary distribution methods, principally syndicated gilt offerings to support the auction programme, and to
help target our core domestic investor base more directly.
A programme of eight syndicated offers raised £34.4 billion, around £7 billion more than via syndications in 2010-11, and
delivered in a more evenflow manner during the year. Sales via syndications were increased from an originally planned
£31.6 billion, with some operations being increased in size better to capture strong and high quality demand which
emerged on the day. To offset this increase, the mini-tender programme was scaled back accordingly, reflecting its “buffer”
role. The syndication programme helped the DMO to sell a record amount1 of £39.0 billion of index-linked gilts, virtually
double the level of sales only three years ago. In all the DMO held 60 operations (including 49 auctions – which remain the
core of our issuance programme), one fewer than last year.
I am pleased with the efficient way in which the gilt market has continued to absorb this high level of issuance. We receive
positive views from market participants on the increased level of liquidity in the gilt market and this was the information
we receive from the GEMMs seems to bear this out, with aggregate daily turnover rising sharply to £28.4 billion per day in
2011-12, an increase of almost one third compared to 2010-11 and an 80% increase on four years ago. Overseas interest
had also remained strong with overseas holdings in gilts rising by some £79 billion to almost £390 billion in 2011.
Alongside gilts, the Treasury bill market, currently around £70 billion, has quadrupled in size in the past four years, and we
have seen strong interest both at our weekly tenders and bilateral sales, and record low yields. Like gilts, Treasury bills are
attracting significant overseas investor interest, with around 45% of the market being held by such investors at the end of
2011.
Looking forward, the DMO has received a new remit for 2012-13 that will require another high level of gilt sales of £164.4
billion. This will need to be delivered in a financial environment which may continue to be volatile and unpredictable, but
on the basis of the DMO’s successful track record to date, I am confident that we will rise to the challenge.
I hope that this brochure is seen as a valuable part of the range of publications available on UK government securities.
Please contact the DMO either via the list of contacts in Annex F to this publication, or via our website www.dmo.gov.uk if
you would like further information.
Robert Stheeman, Chief Executive
1
In absolute terms. June 2012

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UK GOVERNMENT SECURITIES

Developments in the gilt market

The gilt market has modernised considerably since the DMO took over responsibility for the gilt market –
the major developments have been:

• Since April 1998, gilts have been issued by the UK Debt

Management Office (DMO), an Executive Agency of
HM Treasury2. The reorganisation followed the transfer of
operational responsibility for setting official UK interest rates
from HM Treasury to the Bank of England in May 1997.
• Financing plans are published a year ahead in the DMO’s
remit from HM Treasury which is contained in the Debt
and Reserves Management Report3. The financing remit
includes a breakdown between conventional and index-
linked gilt sales, the maturity split within conventional
sales and the dates and types of auctions.
• 2011-12 saw the sale of £179.4 billion of gilts, the second
highest amount on record (after the £227.6 billion in
2009-10). Planned gilt sales announced at the March 2011
Budget were £169.0 billion, but this total was reduced to
£167.5 billion following the publication of the CGNCR
outturn for 2010-11 on 21 April 2011. Planned gilt sales
were then increased to £178.9 billion at the Autumn
Statement on 29 November 2011.
• Gilt sales at auctions (£142.5 billion) accounted for the
bulk (79%) of the programme but these were
supplemented by sales of gilts via supplementary
distribution methods, syndicated gilt offerings and mini-
tenders. Together these supplementary methods raised

2
The Bank of England had previously been responsible for issuing gilts on behalf of HM Treasury.
3
This is available on the DMO website, see Annex E.

4
 UK GOVERNMENT SECURITIES

Developments in the gilt market

£36.9 billion (£34.4 billion via eight syndicated offerings year-on year, reaching 5.0 minutes in 2011-12. market). 2011-12 also saw a further significant growth in
and £2.6 billion via three mini-tenders). the proportion of the index-linked portfolio accounted
• In order to enhance market liquidity, the DMO has
• A further source of gilt sales proceeds introduced in directed conventional gilt issuance to building up large for by gilts with a three-month indexation lag design,
2009-10 is the Post Auction Option Facility (PAOF). considered to be international best practice. The
benchmark issues. This has resulted in a smaller number
Under the PAOF successful bidders at all auctions have proportion of these bonds in the index-linked portfolio
of gilts but of larger size.
the option to acquire up to an additional 10% of the grew from 53% to 62% over the year to end-March 2012.
• The number of conventional gilts4 in issue fell from 66 at
total of gilts they were allocated at the auction at the • The value of gilts held by overseas investors continued to
average accepted/strike price of the auction. The option end-March 1998 to 47 by end-March 2012 (of which 9
rise in 2011, by £79.4 billion to £388.6 billion5, or 31% of
is open for 2 hours up to 2.00pm on the day of the were small “rump” gilts for which market-making
the overall portfolio at end-December 2011. In absolute
auction. £5.8 billion was raised via the PAOF in 2011-12. obligations are relaxed and for which the DMO is
terms, overseas holdings have more than doubled in four
prepared to bid a price). years (see page 9).
• The use of supplementary distribution methods (and the
PAOF) is being maintained in 2012-13. Syndicated gilt • The gilt portfolio has become more concentrated in • At end-March 2012 the nominal value of the gilt
offerings will be used exclusively to sell long-dated larger individual issues. In 1998 the largest conventional portfolio was £1,163.8 billion6 with a market value of
conventional and index-linked gilts. For the first time in gilt had £16.5 billion (nominal) in issue and the average £1,389.8 billion. Excluding government holdings these
2012-13, any maturity and type of gilt may be sold by size of non-rump conventional gilts was £4.9 billion values were £1,042.4 billion and £1,310.8 billion
mini-tender (see page 16). Gilt sales of £164.4 billion are (nominal). At end-March 2012 there were 18 respectively. Gilts accounted for some 94.3% of the UK
planned in 2012-13, of these £124.9 billion are planned conventional gilts with over £25.0 billion in issue and 8 Government’s marketable sterling debt at that time7.
by auction and £39.5 billion by supplementary methods with £30.0 billion or more in issue. The average size of
the largest 20 conventional gilts was £29.9 billion. • The list of gilts in issue at end-March 2012 is in Annex A.
(£33.0 billion via syndication and £6.5 billion via mini-
tender). • The proportion of index-linked gilts in the portfolio has
• The DMO introduced electronic bidding at gilt auctions risen significantly since their launch in 1981, with the
in 2007. As a consequence, the average time taken to nominal uplifted amount, standing at £265.8 billion
publish results fell from 20 minutes in 2006-07 to 10 (22.8% of the gilt portfolio) at end-March 2012 (the
minutes in 2007-08. Thereafter average release times fell largest proportion of any major government bond

4
Including double-dated and undated gilts.
5
In market value terms.
6
Including index-linked uplift.
7
The remaining 5.7% was accounted for by Treasury bills (1-, 3- and 6-month maturity instruments).

5
UK GOVERNMENT SECURITIES

Objective of UK Government debt management

The primary objective of UK debt management is:

“ to minimise over the long term, the costs of meeting the Government’s financing needs, taking
account of risk, while ensuring that debt management policy is consistent with the aims of
monetary policy.”

In so far as gilts are concerned, this objective is to Maturity and composition of debt issuance
be realised by: In order to determine the maturity and composition of
• pursuing an issuance policy that is open, predictable and debt issuance the Government takes into account a
transparent; number of factors including:
• issuing conventional gilts that achieve a benchmark • investors’ demand for gilts;
premium;
• the Government’s own attitude to risk, both nominal
• adjusting the maturity and nature of the Government’s and real;
debt portfolio primarily by means of the maturity and
• the shape of both the nominal and real yield curves and
composition of debt issuance and potentially by other
the expected effects of issuance policy, and;
market operations including switch auctions, conversion
offers and buy-backs, and; • changes to the levels of Treasury bill stocks and other
short-term debt instruments.
• encouraging the development of a liquid and efficient
gilt market.

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 UK GOVERNMENT SECURITIES

Why the UK Government issues gilts

The UK gilt issuance programme is designed to finance two major components

of the national accounts:

i) The Central Government Net Cash Table 1: CGNCR and gilt sales from
1998-99 to 2012-13
Requirement (CGNCR)
£ bn CGNCR Gilt Sales
This is essentially the difference between Central
1998-99 -4.6 8.2
Government’s income and expenditure in cash terms.
The Government publishes an annual forecast for the 1999-00 -9.1 14.4
CGNCR in the Budget each Spring. The forecast is 2000-01 -35.6 10.0
produced by the independent Office for Budget 2001-02 2.8 13.7
Responsibility (OBR) and is typically revised in the
2002-03 21.8 26.3
HM Treasury Economic and Fiscal Outlook each Autumn. Table 1
shows the history of the CGNCR, and of gilt sales, since 2003-04 39.4 49.9
1998-99. 2004-05 38.5 50.1
2005-06 40.8 52.3
2006-07 37.1 62.5
2007-08 32.6 58.5
2008-09 162.4 146.5
2009-10 198.8 227.6
2010-11 139.6 166.4
2011-12 126.4 179.4
2012-13 forecast 121.0 164.4
ii) The redemption of maturing gilts
The amount needed to finance the annual repayment of maturing gilts (net of official holdings) is taken
into account when setting the annual gilt financing requirement. For 2012-13, the redemption total of £52.9
billion is a little higher than the previous financial year (£49.0 billion).

7
UK GOVERNMENT SECURITIES

Future financing projections

Budget 2012, published on 21 March 2012, included

forecasts for the CGNCR out to 2016-17; these, together
with current forecasts of redemptions for these years are
shown in Table 2 along with the corresponding indicative
gross financing requirements.
On the basis of the forecasts published in the March 2012
Budget (see Table 2), a gross financing requirement of some
£170 billion is forecast for 2013-14. Chart 1: Gross and net gilt issuance (including illustrative projections)
Chart 1 shows historical gross and net gilt issuance since £ bn %
1990-91 and net debt/GDP data; it also shows projections 250 90
for future gross and net issuance and the net debt/GDP Gross issuance (illustrative projections 2013-14 onwards)
ratio out to 2016-17 (based on the March 2012 Budget data). 225 80
Net issuance (illustrative projections 2013-14 onwards)
Net debt/GDP (Budget 2012 forecasts)
200
70

175
60

150
50
125
40
100
Table 2: Illustrative financing projections
30
£ bn 2013-14 2014-15 2015-16 2016-17 75

CGNCR projections 112 81 56 37 20

50
Gilt redemptions 52 60 67 69
25 10
Financing for the reserves 6 6 0 0

Illustrative gross 170 147 123 106 0 0

financing requirement

-08
-98
-95

-99
-91

-00

-06
-05

-09
-92

-93

-94

-96

-97

-13

-14
-04

-11
-01

-02

-07

-12
-03

-10

-15

-16

-17
07
97
94

98
90

99

05
04

08
91

92

93

95

96

12

13
03

10
00

01

06

11
02

09

14

15

16
20
19
19

19
19

19

20
20

20
19

19

19

19

19

20

20
20

20
20

20

20

20
20

20

20

20

20
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 UK GOVERNMENT SECURITIES

Gilt market turnover/overseas holdings

Annual turnover by value in the gilt market has risen Chart 3 below shows the trend in overseas holdings of gilts.
markedly since 1999-00. Aggregate daily turnover reported Since the end of 2003 there has been a sustained rise in the
by the GEMMs (see page 17) to the DMO was £28.4 billion amount of gilts reportedly held by overseas investors. In
in 2011-12, up from £20.9 billion in 2010-11. The recent 2011 overseas holdings grew in absolute terms from £309.2
increase in turnover can be attributed in part to rising levels billion to £388.6 billion (an increase in relative terms from
of gilt issuance. Trading intensity (as measured by the 31.1% to 32.2% of the gilt portfolio). The increase in
turnover ratio8) rose from 6.23 in 2010-11 to 7.20 in overseas holdings has been attributed to purchases of
2011-12. (mainly short-dated) gilts by overseas Central Banks,
reserve managers and hedge funds.

Chart 2: Gilt market turnover Chart 3: Overseas holdings of gilts

Turnover £ bn Turnover ratio £ bn %

30.0 10 400 £bn 40.0%
Aggregate daily turnover
Overseas holdings (£bn)
Turnover ratio
Aggregate daily turnover Overseas holdings (%)
9
Turnover ratio 350 35.0%
25.0
8

300 30.0%

7
20.0
250 25.0%
6

15.0 5 200 20.0%

4
150 15.0%
10.0
3

100 10.0%
2
5.0
50 5.0%
1

0.0 0 0 0.0%
2007 Q1

2008 Q1

2009 Q3

2010 Q1

2010 Q3

2011 Q1
2007 Q3

2008 Q3

2009 Q1

2011 Q3
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Source: GEMMs Source: ONS

8
The turnover ratio for a given financial year is the aggregate turnover in that year relative to the market value of the portfolio at the start of that year.

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UK GOVERNMENT SECURITIES

Main types of gilts:

Conventional gilts

The gilt market predominantly comprises two different types of securities with
different features.
• Conventional gilts
• Index-linked gilts
Together these types of gilts accounted for over 99% of gilts in issue at end-March 2012.

Conventional gilts
Conventional gilts are the simplest form of UK Government Conventional gilts also have a specific maturity date. In the case of
bond and constitute the largest share of liabilities in the UK 2% Treasury Gilt 2016 the principal is due to be repaid to
Government’s portfolio. At end-March 2012, conventional investors on 22 January 2016. In recent years the Government
gilts comprised 77.2% of the gilt portfolio (by nominal value, has concentrated issuance of conventional gilts around the 5-, 10-
including index-linked uplift within the overall portfolio). , 30-, 40- and 50- year maturity areas.
A conventional gilt is a liability of the UK Government
Until October 2009 conventional gilts were issued by the DMO
which guarantees to pay the holder of the gilt a fixed cash
with aligned coupon dates (7 March/7 September and 7 June/7
payment (coupon) every six months until the maturity
December). This is to permit fungibility between the individual
date, at which point the holder receives the final coupon
coupon strips from different bonds (see Annex D).
payment and the return of the principal. The prices of
conventional gilts are quoted in terms of £100 nominal. In October 2009 a third coupon series for conventional gilts
(paying on 22 January/July), was introduced. The DMO has no
A conventional gilt is denoted by its coupon rate and
immediate plans to make gilts on the new series strippable, but
maturity (e.g. 2% Treasury Gilt 2016). The coupon rate
would make an announcement, giving sufficient implementation
usually reflects the market interest rate at the time of the
time, before gilts on the third series become strippable. Gilts also The griffin is the heraldic symbol
first issue of the gilt. Consequently there is a wide range of for the City of London.
continue to be issued on the first two coupon series.
coupon rates available in the market at any one time, reflect-
ing how rates of borrowing have fluctuated in the past. For some time new conventional gilts were referred to as “Treasury
The coupon indicates the cash payment per £100 nominal Stocks”, but since 2005-06 all new gilts have been named “Treasury
that the holder will receive per year. This payment is made Gilts”. Some older gilts are referred to as “Conversion Stock” or
in two equal semi-annual payments on fixed dates six “Exchequer Stock”. The names are of no significance as far as the
months apart (these payments are rolled forward to the design of the instrument or the underlying obligation to repay is
next business day if they fall on a non-business day). concerned – all are unconditional obligations of HM Government.

10
 UK GOVERNMENT SECURITIES

Index-linked gilts

Index-linked gilts The RPI will continue to be published by the ONS and For issuance of CPI linked gilts to occur at some point in
payments for existing index-linked gilts will remain linked to the future the Government would need to come to a
Index-linked gilts accounted for 22.8% of the Government’s judgement that the potential benefits of issuance
the RPI.
gilt portfolio (including the inflation uplift) at end-March outweighed the costs and risks, both for itself as issuer and
2012. For index-linked gilts whose first issue date is before July for the gilt market.
2002, the Bank of England performs the function of
All new index-linked gilts are issued with a three-month calculating and publishing the uplifted coupons on each
indexation lag (as opposed to the eight-month lag used for index-linked gilt following the release of the RPI figure
earlier issues). The three-month indexation lag design is in which is relevant to it. For later index-linked gilts, the
line with international best practice (see page 12). The first DMO performs this function;
index-linked gilts with a three-month indexation lag were
issued in 2005-06: since then the number of three-month More details on the mechanics of index-linked gilts are
indexation lag bonds in issue has increased to 13, accounting included in the DMO’s publication “Private Investor’s Guide
for some 62% of the index-linked gilt portfolio at end-March to Gilts”. Also available on the DMO website is an index-
2012. linked gilt cash flow calculation document. The URL is
available in Annex E.
The UK was one of the earliest developed economies to issue
index-linked bonds for institutional investors, with the first CPI-linked gilts consultation
issue being in 1981. Since then it has issued 32 different On 29 June 2011 the DMO launched a consultation on
index-linked gilts of which 13 have since matured. As with CPI-linked gilts to build an evidence base to inform the
conventional gilts, the coupon on an index-linked gilt reflects Government’s consideration of whether to issue such
borrowing rates available at the time of first issue. However, as instruments. The consultation closed on 22 September
index-linked coupons reflect the real borrowing rate for the 2011.
Government there is a much smaller variation in index-linked
coupons, reflecting the smaller change in real yields over time. The DMO published its response on 29 November 2011
and announced that the Government had decided not to
Index-linked gilts differ from conventional gilts, in that the Plantation Lane
issue CPI linked gilts in 2012-13. It judged that issuance of
semi-annual coupon payments and the principal are adjusted such gilts in the near term would be unlikely to be cost
in line with the General Index of Retail Prices in the UK (also effective and involve a number of risks. This decision does
known as the RPI). Both the coupons and the principal on not preclude CPI linked issuance in the medium term,
redemption paid on these gilts are adjusted to take account of should there be a case to do so, and the Government will
accrued inflation since the gilt was first issued. keep the case to issue CPI linked gilts under review.

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UK GOVERNMENT SECURITIES

Index-linked gilts

Three-month lag index-linked gilts

Since September 2005 all new index-linked gilts employ the
three-month indexation lag structure first used in the
Canadian Real Return Bond market and not the eight-
month lag methodology used for index-linked gilts issued
before that date. In addition to the lag being shorter, with
this design the indexation is applied in a significantly
different way (see below). Index-linked gilts with a 3-
month lag also trade on a real clean price basis. As a result,
the effect of inflation is stripped out of the price of the new
gilts for trading purposes, although it is included when
such trades are settled.
Indexation methodology
An index ratio is applied to calculate the coupon
payments, the redemption payment and the accrued
interest. The index ratio for a gilt measures the growth in
the RPI since it was first issued. For a given date it is
defined as the ratio of the reference RPI applicable to that
date divided by the reference RPI applicable to the
original issue date of the gilt and is rounded to the
nearest 5th decimal place.
The reference RPI for the first calendar day of any month
is the RPI for the month three months previous (e.g. the
reference RPI for 1 June is the RPI for March). The
reference RPI for any other day in a month is calculated
by linear interpolation between the reference RPI

The ruined church of St Dunstan’s in the East, now a City garden.

12
 UK GOVERNMENT SECURITIES

Index-linked gilts

applicable to the first calendar day of the month in which Eight-month lag index-linked gilts
the day falls and the reference RPI applicable to the first
calendar day of the month immediately following. To calculate the inflation adjustment, two RPI figures are
Interpolated values should be rounded to the nearest 5th required - that applicable to the gilt when it was originally
decimal place. issued and that relating to the current interest payment. In
each case the RPI figures used are those applicable eight
Daily index ratios and reference RPIs are published on the months before the relevant dates (e.g. for a November
DMO website www.dmo.gov.uk following both the coupon date the previous March RPI figure is used). This
publication each month of the RPI and when a new index- “indexation lag” is required so that the size of each
linked gilt is issued. The URL is in Annex E. forthcoming interest payment is known at the start of the
coupon period, thereby allowing the accrued interest to be
For more details about these calculations see Annex B of
calculated.
the third edition of the DMO publication "Formulae for
Calculating Gilt Prices from Yields" on the DMO website.
This publication also includes all relevant technical details
for both types of index-linked gilts. The URL is in Annex E.
Trading Convention
Index-linked gilts with a three-month lag trade, and are
issued, on the basis of the real clean price per £100
nominal.
The inflation-adjusted clean price per £100 nominal on a
given day is calculated by multiplying the real clean price
by the index ratio for the day in question9.
The inflation-adjusted dirty price per £100 nominal on a
given day is calculated by adding the inflation-adjusted
accrued interest10 to the inflation-adjusted clean price.

30 St Mary Axe,
popularly known as “The Gherkin”.

9
This amount is left unrounded.
10
Calculated by multiplying the real accrued interest amount by the index ratio
for the day in question.

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UK GOVERNMENT SECURITIES

Other types of gilts

Double-dated gilts (and ‘rump’ gilts) Undated gilts

In the past, the UK Government issued double-dated gilts There are currently eight undated gilts in issue (comprising
with a band of maturity dates. At end-March 2012 there 0.2% of the gilt portfolio). These are the oldest remaining
was only one remaining with £15 million in issue. The gilts in issue, some dating back to the nineteenth century.
Government can choose to redeem these gilts in whole, or The redemption of these bonds is at the discretion of the
in part, on any day between the first and final maturity Government, but, because of their age, they all have low
dates, subject to giving not less than three months’ notice. coupons and so there is little current incentive for the
Government to redeem them. Most undated gilts pay
The one remaining double-dated gilt is designated as a
interest twice a year, however, some11 pay interest four
“rump”. Rump gilts are small, generally older, illiquid
times a year. With the exception of 31/2% War Loan (which
bonds in which GEMMs (see page 17) are not required to
has £1.9 billion in issue), all undated gilts
make markets.
are designated as “rumps”.
Rump gilts are not available for purchase from the DMO.
See page 21 for a list of rump gilts.

11
2 1/2% Annuities, 2 3/4% Annuities and 2 1/2% Consolidated Stock. The London Guildhall

14
 UK GOVERNMENT SECURITIES

Gilt market operations

Gilt issuance The UK Government uses two different auction formats to participants and encouraging participation.
issue gilts:
Until the exceptional remit revision in October 2008 to Competitive bids at auctions must be directed via the UK’s
finance the recapitalisation of a number of UK banks, all • Conventional gilts are issued through a multiple price primary dealers – the Gilt-edged Market Makers (GEMMs)13,
scheduled issuance of conventional gilts had been by auction; who have direct electronic bidding links to the DMO.
auction since April 1996 and, with one exception12, of • Index-linked gilts are auctioned on a uniform price basis. GEMMs are also offered a non-competitive allowance at each
index-linked gilts since November 1998. conventional or index-linked auction. The DMO sets aside a
The two different formats are employed because of the
In October 2008 the exceptional remit revision included the different nature of the risks involved to the bidder for the total of 10% of the nominal amount on offer to provide the
introduction of a series of mini-tenders of gilts (see below) in GEMM community with the assurance of a guaranteed
different securities.
Q3 of 2008-09. Their continued use was formalised in minimum allocation, in order that they are more willing to
subsequent financing remits. Conventional gilts are viewed as having less primary issuance carry short positions into the auction itself.
risk. There are often similar gilts already in the market to
On 2 June 2009, the DMO introduced a facility giving an
Syndicated offerings (see below) – were introduced as an allow ease of pricing (or, if more of an existing gilt is being
option to successful bidders at auctions (both GEMMs and
integral component of the planned financing programme for issued, there is price information for the existing parent gilt);
investors) to purchase additional stock of up to 10 per cent
2009-10 at Budget 2009, following positive market feedback and auction positions can be hedged using gilt futures, swaps of the amount allocated to them at the auction. The option
at a consultation exercise launched in December 2008. and other tools. The secondary market is also liquid. This window opens at 12.00 noon on the day of the auction and
Syndicated offerings are being used for the fourth suggests that bidders are not significantly deterred from closes at 2.00pm on the day of the auction. The additional
consecutive year in 2012-13. participation by not knowing what the rest of the market’s stock will be available to successful bidders at the average
valuation of the gilts on offer is. A multiple price auction accepted price at conventional auctions and the single
Gilt auctions
format also reduces the risk to the Government of implicit clearing (or strike) price at index-linked auctions.
The ongoing commitment to a pre-announced auction collusion by strategic bidding at auctions.
schedule reflects the UK Government’s commitment to For details on auction procedures see the publication
In contrast, positions in index-linked gilts cannot be “Official operations in the gilt-edged market – an
transparency and predictability in gilt issuance.
hedged as easily as those on conventional gilts. The Operational Notice”, on the DMO website
Transparency and predictability should reduce the amount
secondary market for index-linked gilts is also not as liquid www.dmo.gov.uk. The URL is in Annex E.
the Government is charged for market uncertainty (the
as for conventional gilts. Both of these factors increase the
“supply uncertainty premium”). Predictability should also
uncertainty of pricing at index-linked auctions and
allow investors to plan and invest more efficiently, in the
increase the “winner’s curse” for successful bidders – that is
knowledge of when and in which maturity band supply
the cost of bidding high when the rest of the market bids
will occur.
low. In addition, there are fewer index-linked gilts than
conventionals in issue and the index-linked derivatives
market is less liquid, so pricing a new bond may be harder
than for a new conventional. Uniform price auctions are
therefore seen as reducing levels of uncertainty for auction
12
The exception for index-linked gilts occurred in September 2005 when the
13
2055 index-linked gilt was issued initially by means of a syndicated offer. The current list of GEMMs is in Annex B.

15
UK GOVERNMENT SECURITIES

Gilt market operations

Syndicated offers Budget Report (PBR) 2008 remit revision and in the
annual remits for 2009-10 and 2010-11. In 2011-12, mini
Syndication is a process whereby an issuer appoints a tenders were used again, but in a slightly modified way, to
group of banks to manage the sale of a bond on its behalf. support the syndication programme, by accomodating
It involves the appointment of specific banks as Lead unexpected variances in syndication proceeds. In practise a
Managers and Co-lead Managers (the syndicate) who have number were cancelled as syndication proceeds came in
responsibilities to act as advisor to the issuer and to market higher than planned.
the bond to investors.
In the 2012-13 remit the use of mini-tenders was extended
Over the period of the offer the Lead Managers build a to include short- and medium-dated conventional gilts, so
book of demand through ongoing dialogue with investors. that all types and maturities of gilt are eligible for sale via
The book closes and the deal is priced when the Lead mini-tender. The role of mini-tenders as a buffer around
Managers and issuer agree that the size and quality of the the syndication programme continues. In the event that
book meets the issuer’s sale objectives. Thereafter the Lead proceeds from the syndication programme fall consistently
Managers and issuer agree the allocation of bonds short of target the mini-tender programme will be
to investors. increased and in the event that syndication proceeds
Until June 2009 syndication had only been used to issue a consistently exceed target, the mini-tender programme will
gilt once; the launch of the 50-year index-linked gilt in be reduced.
September 2005. A programme of up to eight syndicated
Tap issues (Taps)
offers was announced as part of the 2009-10 financing
remit; six were held raising £30.5 billion (cash). In 2010-11 Taps have not been used as a routine means of financing
five offers were held raising £26.9 billion. In 2011-12, eight since April 1996 for conventional gilts, and not since
offers were held, raising £34.4 billion November 1998 for index-linked gilts. They are intended
now to be used only as a market management mechanism
A programme of up to eight offers is planned for 2012-13, in conditions of temporary excess demand in a particular
aiming to raise £33.0 billion. gilt or sector. Taps can be used either to supply incremental
amounts of a gilt to the market, or, via reverse taps, to buy
Mini-tenders gilts back from the market. There has been no tap issue
Mini-tenders were introduced in the October 2008 remit since August 1999.
revision to supplement issuance at auctions with smaller Full details of the DMO’s operations in the gilt market can
issues, with less pre-announcement and designed to access be found in its gilt market Operational Notice, available
emerging pockets of demand in specific gilts. They were re- from the DMO and on its website www.dmo.gov.uk. The Leadenhall Market
affirmed on this basis as part of the remit in the Pre- URL is in Annex E.

16
 UK GOVERNMENT SECURITIES

Gilt-edged Market Makers (GEMMs)

The UK Government bond market operates with a primary • to provide information to the DMO on market
dealer system. At end-March 2012 there were 21 firms conditions, the GEMMs’ positions and turnover; and
recognised as GEMMs by the DMO (see list in Annex B).
• to provide closing prices of gilts to the DMO which
Each GEMM must be a member of a Recognised
Investment Exchange (in practice the London Stock collates the information and publishes reference prices
Exchange) and undertakes a number of market-making on the wire services and on its website on behalf of the
obligations, in return for certain privileges. GEMMs.

At end-March 2012, all GEMMs were recognised as Market

Makers in both conventional and index-linked gilts. Two of The privileges of GEMM status include:
these firms are designated as specialist retail GEMMs, who • exclusive rights to competitive bidding at gilt auctions
transact principally with retail (as opposed to wholesale) and other operations, either for the GEMM’s own
investors. account, or on behalf of clients;
The Jamaica Inn. The site of the The DMO has published a guidebook outlining the • the right to an exclusive non-competitive auction
first London Coffee House in the relationship between the DMO and the GEMMs, entitled
eighteenth century. This is where city allocation (up to 10% aggregate total for both
deals were carried out. “A guide to the roles of the DMO and Primary Dealers in conventional and index-linked auctions)
the UK Government Bond Market”; this is available on the
DMO website, www.dmo.gov.uk. The URL is in Annex E. • the exclusive facility to trade as a counterparty of the
DMO in any of its secondary market operations,
The obligations of a GEMM include: including any transactions undertaken by the DMO for
• to make effective two-way prices to customers on market management purposes;
demand in all non-rump gilts in all market conditions, • exclusive ability to strip gilts (see Annex D);
thereby providing market liquidity for customers
wishing to trade; • an invitation to a quarterly consultation meeting with
the DMO, allowing the GEMMs to advise on the gilts to
• to participate actively in the DMO’s gilt issuance
be scheduled for sale in the following quarter, and to
programme, broadly speaking by bidding competitively
discuss other market-related issues; and
in all auctions and achieving allocations commensurate
with their secondary market share; • exclusive access to gilt Inter-Dealer Broker (IDB) screens.

17
UK GOVERNMENT SECURITIES

Gilt market conventions and registration

Most gilts are quoted on a “clean price”14 basis, with the Since gilts are predominently registered investments16, it is
price typically being quoted per £100 nominal and to two necessary to establish the identity of the recipients of each
decimal places15. Settlement is usually on the next business coupon payment ahead of the coupon date. Consequently,
day (T+1), although trades can occur for forward there is a period prior to each dividend date when a gilt is
settlement. dealt without entitlement to that dividend (i.e. it is traded
“ex-dividend”). For gilt trades settling on or before the
While coupon payments on individual gilts are usually
gilt’s ex-dividend date (which is seven business days before
made only twice a year, gilts can be traded on any business
each coupon date for all gilts except 31/2% War Loan,
day. Whenever a gilt trades for settlement on a day that is
where it is ten business days), the buyer is entitled to the
not a coupon payment date, the valuation of the gilt will
next coupon payment and the accrued interest is positive.
reflect the proximity of the next coupon payment. Accrued
Trades conducted in this period are said to be “cum-
interest is paid to compensate the seller for the period since
dividend”. For trades settling after the ex-dividend date, the
the last coupon payment date during which the seller has
seller receives the next coupon payment and the accrued
held the gilt but for which he/she receives no interest.
interest on the gilt is negative, reflecting the fact that the
Having only held the gilt for part of the coupon period the
buyer of the gilt is entitled to a rebate from the seller. The
seller only receives a pro-rata share of the next coupon.
full price of the gilt, which includes the accrued interest, is
called the “dirty price”.
The daycount convention used for the calculation of
accrued interest is actual/actual.
The Lloyds Building - one of the City of
London’s most distinctive works of
architecture.
Since December 2004, Computershare Investor Services
plc (CIS) has maintained the Register of holdings of gilts
under a contract from HM Treasury (and administered by
the DMO).

14
A "clean" price is the price of a gilt which excludes accrued interest or rebate interest.
15
Before 1 November 1998 gilts were priced and traded in £1/32nds.
16
Entry of the name of the holder in the Gilt Register confirms title.

18
 UK GOVERNMENT SECURITIES

Settlement and Treasury bills

Settlement of gilt trading: Euroclear A gilt investor who holds gilts in Euroclear does not receive Short-term debt instruments (Treasury bills)
a physical certificate. Rather, direct Euroclear members may
Euroclear is the multi-currency, electronic settlement Treasury bills are short-term, marketable instruments issued
access information on their holdings from the Euroclear
system for UK and Irish securities, providing secure and by the DMO. To date, the DMO has issued Treasury bills with
system. Approximately 99% of the total value of gilts is held
resilient facilities for investors to hold securities in maturities of one-, three- and six-months but can also issue
in dematerialised form within Euroclear. Euroclear offers
dematerialised form and to transfer securities electronically bills of up to one year maturity. Treasury bills do not pay
facilities for:
in real time. Transfers are processed on the principle of coupons. They are issued at a discount to their nominal or
delivery versus payment (DVP), without the need for • settlement of securities and cash transfers; face value. In 2011-12 the stock of Treasury bills in market
certificates. The official stock register is updated • reconciliation of positions and transfers within Euroclear; hands rose by £6.8 billion to £70.4 billion by end-March
simultaneously with movements of stock within Euroclear. 2012. Stocks are planned to fall by £1.9 billion in 2012-13.
• overnight transfer of collateral – delivery by value (DBV)
– to allow members to receive/issue gilts against a secured In November 2007 the DMO introduced a facility which
overnight loan; allows it to re-open existing Treasury bills and issue them on
• stripping and reconstitution of gilts for GEMMs, the a bilateral basis, on request from any of its cash management
DMO and the Bank of England; counterparts (provided that such issuance was consistent
with its cash management operational requirements). At end-
• a flexible membership and portfolio management March 2012 there were £7.4 billion of such bills in issue –
structure;
these formed part of the £70.4 billion total stock in market
• automatic transaction reporting to the London Stock hands on that date.
Exchange and the Financial Services Authority;
Following the introduction of electronic bid capture for
• settlement banks17 to extend credit to Euroclear members Treasury bill tender in February 2010, result release times
and manage their exposure; and
fell considerably. In 2011-12 the average release time was
• efficient processing of stock lending and repo 5.9 minutes.
transactions.
Since dematerialisation in September 2003, Treasury bills
Euroclear members include GEMMs and specialist financial have cleared within Euroclear. Dematerialisation means that
institutions, broking intermediaries and custodians acting Treasury bills with the same maturity date are now fungible.
on behalf of institutional investors (such as insurance Treasury bills are eligible for inclusion in the main traded
companies and pension funds). Members also include category of gilt, Delivery-by-Value (DBV), so they can be
The Royal Exchange – nominee companies, that allow indirect participation in used as collateral for bilateral gilt repo transactions.
site of financial trading since 1560. Euroclear for nominee account holders, and individuals. Treasury bills are also eligible as collateral for the Bank of
England’s Open Market Operations and in RTGS18.
For more details see the money markets section of the
DMO website www.dmo.gov.uk. The URL is in Annex E.
17 18
Those banks which provide payment facilities to CRESTCo members The Real-time Gross Settlement payment system operated by the
through CREST. Bank of England.

19
UK GOVERNMENT SECURITIES

Annex A. Gilts in issue at 31 March 2012

Total amount in issue (inc IL uplift) £1,163.84bn nominal (£1,042.38bn nominal excluding Government holdings)

Conventional Gilts Redemption Dividend First Issue Total Amount Central Government
Date Dates Date in Issue Holdings
(£mn nom) (£mn nom)
Shorts: (maturity up to 7 years)
51/4% Treasury Gilt 2012 7-Jun-12 7 Jun/Dec 16-Mar-07 25,612 2,996
41/2% Treasury Gilt 2013 7-Mar-13 7 Mar/Sep 5-Mar-08 34,519 4,393
8% Treasury Stock 2013 27-Sep-13 27 Mar/Sep 1-Apr-93 8,560 2,765
21/4% Treasury Gilt 2014 7-Mar-14 7 Mar/Sep 20-Mar-09 34,863 756
5% Treasury Stock 2014 7-Sep-14 7 Mar/Sep 25-Jul-02 37,372 5,498
23/4% Treasury Gilt 2015 22-Jan-15 22 Jan/Jul 4-Nov-09 28,792 629
43/4% Treasury Stock 2015 7-Sep-15 7 Mar/Sep 26-Sep-03 34,379 5,708
8% Treasury Stock 2015 7-Dec-15 7 Jun/Dec 26-Jan-95 10,215 3,010
2% Treasury Gilt 2016 22-Jan-16 22 Jan/Jul 3-Nov-10 31,870 692
4% Treasury Gilt 2016 7-Sep-16 7 Mar/Sep 2-Mar-06 34,346 4,981
13/4% Treasury Gilt 2017 22-Jan-17 22 Jan/Jul 19-Aug-11 26,837 221
83/4% Treasury Stock 2017 25-Aug-17 25 Feb/Aug 30-Apr-92 10,730 3,359
1% Treasury Gilt 2017 7-Sep-17 7 Mar/Sep 8-Mar-12 4,000 1
5% Treasury Gilt 2018 7-Mar-18 7 Mar/Sep 25-May-07 29,938 4,956
41/2% Treasury Gilt 2019 7-Mar-19 7 Mar/Sep 26-Sep-08 26,873 1,782
Mediums: (maturity 7 to 15 years)
33/4% Treasury Gilt 2019 7-Sep-19 7 Mar/Sep 8-Jul-09 27,674 600
43/4% Treasury Stock 2020 7-Mar-20 7 Mar/Sep 29-Mar-05 32,073 4,060
33/4% Treasury Gilt 2020 7-Sep-20 7 Mar/Sep 10-Jun-10 23,669 510
8% Treasury Stock 2021 7-Jun-21 7 Jun/Dec 29-Feb-96 23,178 6,784
33/4% Treasury Gilt 2021 7-Sep-21 7 Mar/Sep 18-Mar-11 27,330 447
4% Treasury Gilt 2022 7-Mar-22 7 Mar/Sep 27-Feb-09 31,065 535
5% Treasury Stock 2025 7-Mar-25 7 Mar/Sep 27-Sep-01 28,648 6,205
Longs: (maturity over 15 years)
41/4% Treasury Gilt 2027 7-Dec-27 7 Jun/Dec 6-Sep-06 28,923 4,532
6% Treasury Stock 2028 7-Dec-28 7 Jun/Dec 29-Jan-98 18,321 4,875
43/4% Treasury Gilt 2030 7-Dec-30 7 Jun/Dec 3-Oct-07 24,791 3,919
41/4% Treasury Stock 2032 7-Jun-32 7 Jun/Dec 25-May-00 28,173 6,595
41/2% Treasury Gilt 2034 7-Sep-34 7 Mar/Sep 17-Jun-09 21,311 419
41/4% Treasury Stock 2036 7-Mar-36 7 Mar/Sep 27-Feb-03 23,194 5,725
43/4% Treasury Stock 2038 7-Dec-38 7 Jun/Dec 23-Apr-04 24,274 5,781
41/4% Treasury Gilt 2039 7-Sep-39 7 Mar/Sep 5-Mar-09 19,016 403
41/4% Treasury Gilt 2040 7-Dec-40 7 Jun/Dec 30-Jun-10 23,925 471
41/2% Treasury Gilt 2042 7-Dec-42 7 Jun/Dec 6-Jun-07 21,733 4,538
41/4% Treasury Gilt 2046 7-Dec-46 7 Jun/Dec 12-May-06 20,604 4,441
41/4% Treasury Gilt 2049 7-Dec-49 7 Jun/Dec 3-Sep-08 19,037 1,726
33/4% Treasury Gilt 2052 22-Jul-52 22 Jan/Jul 28-Sep-11 9,348 98
41/4% Treasury Gilt 2055 7-Dec-55 7 Jun/Dec 27-May-05 23,112 4,643
4% Treasury Gilt 2060 22-Jan-60 22 Jan/Jul 22-Oct-09 16,858 359 View by the Thames
31/2% War Loan 1 Jun/Dec 01-Dec-32 1,939 32
For an up-to-date list of gilts in issue visit http://www.dmo.gov.uk/index.aspx?page=gilts_In_Issue

20
 UK GOVERNMENT SECURITIES

Index-linked Gilts Redemption Dividend First Issue Total Nominal Base Central
Date Dates Date Amount including RPI* Government
in Issue Inflation for Jan Holdings
(£mn nom) Uplift 1987 = (£mn nom)
(£mn) 100
* Base RPI for all index-linked gilts Jan 1987=100. 3-month lag
(Base RPI values for 8-month lag bonds are rounded here for 11/4% Index-linked Treasury Gilt 2017 22-Nov-17 22 May/Nov 8-Feb-06 11,984 14,727 193.72500 338
presentation purposes) 17/8% Index-linked Treasury Gilt 2022 22-Nov-22 22 May/Nov 11-Jul-07 15,826 18,320 205.65806 159
11/4% Index-linked Treasury Gilt 2027 22-Nov-27 22 May/Nov 26-Apr-06 15,578 19,110 194.06667 250
It is assumed that double-dated gilts will be redeemed at the
01/8% Index-linked Treasury Gilt 2029 22-Mar-29 22 Mar/Sep 23-Nov-11 4,750 4,763 237.42000 0
first maturity date.
11/4% Index-linked Treasury Gilt 2032 22-Nov-32 22 May/Nov 29-Oct-08 13,930 15,273 217.13226 3
03/4% Index-linked Treasury Gilt 2034 22-Mar-34 22 Mar/Sep 25-May-11 8,510 8,724 232.22903 0
11/8% Index-linked Treasury Gilt 2037 22-Nov-37 22 May/Nov 21-Feb-07 12,863 15,141 202.24286 205
05/8% Index-linked Treasury Gilt 2040 22-Mar-40 22 Mar/Sep 28-Jan-10 11,490 12,633 216.52258 1
05/8% Index-linked Treasury Gilt 2042 22-Nov-42 22 May/Nov 24-Jul-09 11,206 12,557 212.46452 1
03/4% Index-linked Treasury Gilt 2047 22-Nov-47 22 May/Nov 21-Nov-07 9,970 11,424 207.76667 50
01/2% Index-linked Treasury Gilt 2050 22-Mar-50 22 Mar/Sep 25-Sep-09 10,422 11,626 213.40000 0
11/4% Index-linked Treasury Gilt 2055 22-Nov-55 22 May/Nov 23-Sep-05 10,454 12,948 192.20000 235
03/8% Index-linked Treasury Gilt 2062 22-Mar-62 22 Mar/Sep 26-Oct-11 8,250 8,328 235.82903 0
8-month lag
21/2% Index-linked Treasury Stock 2013 16-Aug-13 16 Feb/Aug 21-Feb-85 7,620 20,049 89.20152 803
21/2% Index-linked Treasury Stock 2016 26-Jul-16 26 Jan/Jul 19-Jan-83 7,982 22,953 81.62231 922
21/2% Index-linked Treasury Stock 2020 16-Apr-20 16 Apr/Oct 12-Oct-83 6,585 18,628 82.96578 685
21/2% Index-linked Treasury Stock 2024 17-Jul-24 17 Jan/Jul 30-Dec-86 6,827 16,406 97.66793 737
41/8% Index-linked Treasury Stock 2030 22-Jul-30 22 Jan/Jul 12-Jun-92 5,207 9,046 135.10000 533
2% Index-linked Treasury Stock 2035 26-Jan-35 26 Jan/Jul 11-Jul-02 9,738 13,165 173.60000 815
“Rump” Gilts (Rump gilts are not available for purchase from the DMO)
9% Treasury Stock 2012 6-Aug-12 6 Feb/Aug 7-Feb-1992 193 2
12% Exchequer Stock 2013-2017 12-Dec-13 12 Jun/Dec 15-Jun-1978 15 0
21/2% Treasury Stock 1 Apr/Oct 28-Oct-1946 259 1
4% Consolidated Loan 1 Feb/Aug 16 Mar 1932 234 1
21/2% Consolidated Stock 5 Jan/Apr/Jul/Oct 05 Apr 1888 167 1
3% Treasury Stock 5 Apr/Oct 01-Mar-1946 37 0
31/2% Conversion Loan 1 Apr/Oct 01-Apr-1921 16 5
23/4% Annuities 5 Jan/Apr/Jul/Oct 17 Oct 1884 1 0
21/2% Annuities 5 Jan/Apr/Jul/Oct 13 Jun 1853 1 0

21
UK GOVERNMENT SECURITIES

Annex B. Gilt-edged Market Makers at 31 March 2012

Bank of America Merrill Lynch Jefferies International Limited Scotiabank Europe plc
Merrill Lynch Financial Centre Vintners Place 201 Bishopsgate
2 King Edward Street 68 Upper Thames Street London EC2M 3NS
London EC1A 1HQ London EC4V 3BJ
Societe Generale Corporate & Investment Banking
Barclays Capital JP Morgan Securities Limited SG House
5 The North Colonnade 125 London Wall 41 Tower Hill
Canary Wharf London EC2Y 5AJ London EC3M 4SG
London E14 4BB
Lloyds TSB Bank plc The Toronto-Dominion Bank (London Branch)*
BNP Paribas (London Branch) 25 Gresham Street 60 Threadneedle Street
10 Harewood Avenue London EC2V 7AE London EC2R 8AP
London, NW1 6AA
Morgan Stanley & Co. International plc UBS Limited
Citigroup Global Markets Limited 20 Cabot Square 1 Finsbury Avenue
Citigroup Centre Canary Wharf London EC2M 2PP
33 Canada Square London E14 4QW
Winterflood Securities Limited*
London E14 5LB
Nomura International plc The Atrium Building
Credit Suisse Securities One Angel Lane Cannon Bridge House
One Cabot Square London 25 Dowgate Hill
London E14 4QJ EC4R 3AB London EC4R 2GA
Deutsche Bank AG (London Branch) Royal Bank of Canada Europe Limited
Winchester House Thames Court
1 Great Winchester Street One Queenhithe
London EC2N 2DB London EC4V 4DE
Goldman Sachs International Limited Royal Bank of Scotland
Peterborough Court 135 Bishopsgate
133 Fleet Street London EC2M 3UR
London EC4A 2BB
Santander Global Banking & Markets UK
HSBC Bank PLC 2 Triton Square
8 Canada Square Regent's Place
London E14 5HQ London NW1 3AN

*Retail GEMM
22
 UK GOVERNMENT SECURITIES

ANNEX C. Taxation (for overseas investors)

Taxation
The main features that apply to overseas investors are:
• Overseas investors are in most cases exempt from any
UK tax on gilts.
• Gilts held on FOTRA (Free of Tax to Residents Abroad)
terms, and the interest on them, are generally exempt
from tax if they are held by persons who are not
ordinarily resident in the UK. The precise terms depend
on the prospectus under which the gilts were issued; but
under the most recent version (post-1996), income on
FOTRA gilts is exempt from tax if the holder is non-
resident, unless the income is received as part of a trade
conducted in the UK. In April 1998, all existing non-
FOTRA gilts were made FOTRA gilts on post-1996
terms.
Further information is available on the HM Revenue &
A view from Canary Wharf underground station. Customs website www.hmrc.gov.uk

23
UK GOVERNMENT SECURITIES

Annex D. Gilt strips

Gilt strips giving sufficient implementation time before such gilts

become strippable. Gilts also continue to be issued on the
Strips is the acronym for Separately Traded and Registered first two coupon series.
Interest and Principal Securities. “Stripping” a gilt refers to
breaking it down into its individual cash flows which can Although anyone can trade or hold strips, only a Gilt-
be traded separately as zero-coupon gilts. A three-year gilt edged Market Maker (GEMM), the DMO or the Bank of
will have seven individual cash flows: six (semi-annual) England can strip (or reconstitute) a strippable gilt.
coupon payments and a principal repayment. Gilts can also GEMMs offering a service in strips to investors are
be reconstituted from all of the individual strips. Not all designated as Strips Market Participants.
gilts are strippable (see below). Official strip facilities have
The market in gilt strips has grown slowly since its
been available in the United States since 1985, and France
inception. Factors that have contributed to this slow
since 1991. Official strip markets also now exist in many
development may have included the need for pension fund Canary Wharf’s towers.
countries including Austria, Belgium, Canada, Germany,
trustees to give the appropriate authority to fund managers
Italy, Japan, the Netherlands, South Africa and Spain. The
to invest in strips and the inversion of the yield curve over
strip market began in the UK on 8 December 1997. All
much of the early period of the DMO’s operations, which
strippable gilts are currently conventional fixed coupon
made strips appear more expensive relative to
instruments.
conventionals. Retail demand for strips has reportedly been
At end-March 2012 there were 30 strippable gilts in two affected by the necessary tax treatment, whereby the
series with a total amount outstanding of £762.2 billion securities are taxed each year on their unrealised capital
(£660.9 billion in market hands). However, only £2.0 gain or loss even though no income payment has been
billion (nominal) were held in stripped form. The 7 June/7 made. However, the ability to hold gilt strips within
December series became strippable in December 1997. A Individual Savings Accounts (ISAs) may reduce the tax
second series, 7 March/7 September, followed in April disincentives to personal investment in strips.
2002.
More details about the gilt strips market can be found in
Until November 2009 new conventional gilts were issued the Bank of England paper “The Official Gilt Strips
on these two coupon series. In November 2009 a third Facility” of October 1997 which is available on the DMO
coupon series (paying on 22 January/July) was introduced. website www.dmo.gov.uk. The URL is in Annex E.
The DMO has no immediate plans to make gilts on the
third series strippable, but would make an announcement

24
 UK GOVERNMENT SECURITIES

Annex E. The DMO website www.dmo.gov.uk

The DMO website provides users with an interactive A wide range of current and historical data are also available
database and reporting service and allows access to all of including;
the DMO’s publications, including:
• gilt and Treasury bill prices and yields;
• the DMO Annual Review, which covers the main
• details of gilt auction and Treasury bill tender results;
developments across the range of the DMO’s activities
each financial year; • details of the DMO’s annual financing remits;
• the Quarterly Review, which highlights more recent • characteristics of the gilt and Treasury bill portfolios;
developments in the DMO’s gilt and cash market activities; • interest rates for loans from the Public Works Loan Board.
• the DMO’s annual Report and Accounts for its Many of the website reports give users the option for auto-
administrative expenditure and also for the operation of matic downloads of data. The website also provides users with
the Debt Management Account; analytical tools and calculators, enabling them to estimate the
• Press releases, gilt and cash market announcements; redemption payment on an index-linked gilt or the repayment
• Market consultation documents. cost of a fixed interest loan from the PWLB.

Some useful links to the DMO website

Private Investor’s Guide to Gilts (and addendum) www.dmo.gov.uk/documentview.aspx?docname=publications/investorsguides/pig201204.pdf
(www.dmo.gov.uk/documentview.aspx?docname=publications/investorsguides/pigadd201006.pdf)
Gilt prices page www.dmo.gov.uk/index.aspx?page=Gilts/Daily_Prices
Gilts in Issue www.dmo.gov.uk/ceLogon.aspx?page=D1A&rptCode=D1A
Money Markets section www.dmo.gov.uk/index.aspx?page=About/TBills
Overseas holdings data www.dmo.gov.uk/ceLogon.aspx?page=Gilts/Overseas_Holdings&rptCode=D5N
Published cash flows for index-linked gilts www.dmo.gov.uk/ceLogon.aspx?page=Nominal_IL&rptCode=D5I
Daily index ratios www.dmo.gov.uk/ceLogon.aspx?page=D10C&rptCode=D10C
RPI data www.dmo.gov.uk/ceLogon.aspx?page=D4O&rptCode=D4O
Operational Notice – Gilt Market www.dmo.gov.uk/documentview.aspx?docname=publications/operationalrules/opnot20091120.pdf
Operational Notice – Cash Management
(and T-bill memorandum) www.dmo.gov.uk/documentview.aspx?docname=publications/moneymarkets/cmopnot180210.pdf
Guidebook – GEMMs www.dmo.gov.uk/documentview.aspx?docname=publications/operationalrules/guidebook20091120.pdf
Debt and Reserves Management Report 2012-13 www.dmo.gov.uk/documentview.aspx?docname=remit/drmr1213.pdf
The Official Gilt Strips Facility: A paper by the Bank of England www.dmo.gov.uk/documentview.aspx?docname=publications/operationalrules/stripfalic.pdf

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Annex F. Contacts

Team Telephone No. E-mail

Policy Team 0845 357 6532 [email protected]

Markets Team 0845 357 6517 [email protected]
Research Team 0845 357 6516 [email protected]
Press 0845 357 6532 [email protected]
Web Team 0845 357 6620 [email protected]
Public Works Loan Board 0845 357 6610 [email protected]

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Annex G. DMO Wire Service pages

Reuters/Telerate Thomson/Topic Bloomberg

Information

Index DMO/INDEX 44799 DMO<GO>

Announcements DMO/GILTS1 to 9 44700 to 44712 DMO1<GO>
Benchmark prices 0#GBTSY=DMO 44720 to 44721 DMO2<GO>
Shop window general information DMO/GILTS10 44717 DMO3<GO>
Shop window 1 DMO/GILTS11 44718 DMO3<GO>
Standing and Special Repos DMO/REPO01 DMO17<GO>
GEMMA ref prices (Conventionals) GEMMA01 to 04 44800 to 44802 DMO4<GO>
GEMMA ref prices (3-month I-L) GEMMA07 44809 DMO5<GO>
GEMMA ref prices (8-month I-L) GEMMA08 44805 DMO6<GO>
GEMMA ref prices (Strips) GEMMA13 to 25 44850 to 44869 DMO7<GO>
Cash Management announcements DMO/CASH01 to 10 44660 to 44669 DMO9<GO>
T-bill tender information DMO/CASH11 to 15 44670 to 44674 DMO10<GO>
Ad-hoc tender information DMO/CASH16 to 17 44675 to 44676 DMO11<GO>
T-bill reference prices DMO/TBILLS01 to 04 44900 to 44903 DMO12<GO>
Market Notices DMO/NOTICE01 DMO16<GO>

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