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Glossary

Accrued interestInterest earned on a gilt since the last interest payment date, which is paid and received at the time of a transaction in addition to the clean price of the gilt. The method for calculating accrued interest in the gilt market is described in Section 3 of PDFFormulae for Calculating Gilt Prices from Yields.
Agency brokersBroker-dealers who intermediate as agents between investors and market makers.
Approved GroupThe DMO’s Approved Group of Investors comprises those individuals who have satisfied the criteria established by the Registrar and the DMO to meet the obligations generally imposed under anti-money laundering legislation. Members are able to use the DMO’s Gilt Purchase and Sale Service administered by the Registrar, and subscribe directly for gilts at auctions. An application pack to join the Approved Group is available through this website and completed application forms should be returned to the Registrar.
Assured paymentPayment corresponding to transfer of gilt securities. Payment to the seller's bank is guaranteed by the buyer's bank and appropriate debits and credits are made to the accounts of the buyer and the seller.
Auction (gilt)Conventional gilts: open to all Gilt-edged Market Makers (GEMMs) who alone are allowed to make competitive bids by the Bloomberg bond auction system. Successful competitive bidders in conventional gilt auctions are allotted gilts on a bid-price basis, paying the price they bid. There is also a limited facility for non-competitive bids from members of the Approved Group
Index-linked gilts: open to IL GEMMs only (for competitive bids) and conducted on a uniform price basis, based on the lowest accepted price. There is also a limited facility for non-competitive bids from members of the Approved Group.
Basis point (bp)One hundredth of 1% (i.e. 0.01%)
Bearer bondA bond for which physical possession of the certificate is sufficient proof of ownership. The issuer does not know the identity of the bondholder. Traditionally the bond carries a detachable coupon.
BEIRBreak-even inflation rate. This is the average annual inflation rate which, if realised, would equate the nominal yield on a conventional gilt and that on an index-linked gilt of the same maturity, i.e. the rate at which (other things being equal) an investor would be indifferent between holding either type of gilt.
BenchmarksInformal term for those gilts, usually with a large outstanding amount and a coupon in line with the prevailing general level of interest rates, which are used by participants in other markets to price other instruments of similar maturity, such as corporate bonds and as a consequence usually trade with high liquidity.
Bid/offer spreadThe difference between the buying price and the selling price of a gilt offered by a dealer. Also referred to as the bid/ask spread.
Bid-to-cover ratioThe ratio of the total amount of bids to the amount on offer at a gilt auction or a Treasury bill tender.
Broker-dealersMembers of the London Stock Exchange who may intermediate between customers and market-makers. They may also act as (matched) principals, transacting business with customers from their own gilt holdings.
CGNCRCentral Government Net Cash Requirement. The HM Treasury financial aggregate that measures the annual cash requirement of central Government.
Clean priceQuoted price of a gilt, which excludes accrued interest. For index-linked gilts with a 3-month indexation lag, the quoted price is the real clean price.
Competitive bidA bid for the gilt, which, if successful, would be filled at the price stated by a bidder in a conventional gilt auction. For index-linked auctions such a bid would be filled at the strike price of the auction.
Conventional gilts Gilts on which interest payments and principal repayments are fixed in nominal terms.
Conversion offerIn a conversion offer the DMO offers holders of one gilt the opportunity to convert their holdings into another gilt – at a specified ratio, based on the market price of both gilts. The aim of such offers is to replace existing high coupon, illiquid gilts with new current coupon gilts of roughly similar duration, and in so doing concentrate liquidity in benchmark gilts.
ConvexityConvexity refers to the second derivative of the price of a bond expressed as a function of its yield (divided by the price). Convexity is a measure of the curvature of the price/yield relationship of a bond and provides an approximation of the part of the price change of a bond for a given change in yield that is not explained by modified duration. The price of a convex bond tends to rise more for a given fall in bond yields than it falls for the same rise in bond yields.
CouponTotal annual interest paid on a gilt holding, usually in two equal, semi-annual instalments. Expressed as a percentage of a £100 nominal holding.
Coupon stripSeparately traded cash flow, which is part of a coupon payment on strippable gilts - such payments are currently available on either 7 March, 7 June, 7 September or 7 December.
CoverThe ratio of the total amount of bids to the amount on offer at a gilt auction or a Treasury bill tender. Also referred to as the Bid-to-cover ratio.
CRESTElectronic settlement system for gilts, equities and other corporate securities in the UK, owned by CRESTCo Ltd (part of Euroclear).
CRNDCommissioners for the Reduction of the National Debt, formally responsible for investment of funds held within the public sector, e.g. the National Insurance Fund. Since July 2002 the CRND has been part of the DMO.
Cum-dividendThe trading status of a bond such that the purchaser of the bond is entitled to receive the next interest payment. The alternative is ex-dividend, where the seller of the bond retains the right to receive the next interest or dividend payment.
Daycount conventionThe convention used to calculate fractions of a standard coupon period for accrued interest or yield calculations. In the gilt market the Actual/Actual convention has been used since November 1998. The method for calculating accrued interest and yields in the gilt market is described in PDFFormulae for Calculating Gilt Prices from Yields.
DBV: Delivery by ValueMechanism whereby a CREST member who has borrowed money against overnight gilt collateral may have gilts on its account to the required value delivered automatically by the system to the CREST account of the money lender.
Deflation floorFeature available in certain international sovereign index-linked bonds (e.g. in the USA and France) but not index-linked gilts, by which the issuer guarantees that the redemption payment will not be less than the original par value.
DeliveryTransfer of gilts (in settlement) from seller to buyer.
Destination giltThe gilt, which will be issued in lieu, following a switch auction or conversion offer.
Dirty price The total price payable on the purchase of a bond calculated as the clean price plus accrued interest for all gilts except index-linked gilts with a 3-month indexation lag. In the case of the latter, the dirty price is calculated as the product of the real clean price and the relevant index ratio, plus the accrued interest.
DMAThe Debt Management Account - the account established in November 1999 through which the DMO's government debt and Exchequer cash management transactions flow.
DMOThe United Kingdom Debt Management Office.
DRMDebt and Reserves Management Team in HM Treasury.
DMRThe annual Debt Management Report produced by HM Treasury. This includes the DMO’s cash and debt remits.
DurationThe weighted average time to maturity of a bond's cash flows, where the weights are defined as the present values of the cash flows (this is "Macaulay" duration). "Modified" duration is a variant of this and provides a simple, although imperfect, measure of a bond's volatility, or sensitivity of the bond's price to changes in interest rates.
DVP: Delivery versus-PaymentExchange of value of assets and money where the transfers are irreversible, unconditional and simultaneously final.
Ex-dividend dateThe date on which the Registrar determines legal entitlement to the next dividend payment on a gilt. Normally trades in the gilt market settle on a T+1 basis and, therefore, trades executed on this date are ex-dividend as they are due to settle the following day (in the ex-dividend period).
Ex-dividend periodA period of 7 business days before a dividend (coupon) payment date. A seller whose trade has settled within the ex-dividend period (i.e. after the ex-dividend date and before the dividend date) will receive the entire dividend but will have to pay a proportion (rebate interest) back to the purchaser. A buyer whose trade has settled within this period will not be entitled to the next dividend or pay any accrued interest but will receive rebate interest.
Floating rate gilt (FRG)Gilt issued with an interest rate adjusted periodically in line with a money market index. There are no FRGs currently in issue - the last redeemed in 2001.
FCAFinancial Conduct Authority.
Framework documentThe Framework document sets out the DMO’s responsibilities and accountability, objectives and targets, and its relationship with the rest of HM Treasury.
FungibleA financial instrument that is equivalent in value to another, and easily exchanged or substituted. The best examples are cash notes, where, for example, one £10 note has the same value and is directly exchangeable with another £10 note. A bearer bond also has this quality.
GEMMs and IL GEMMsFirms recognised by the DMO as Gilt-edged Market Makers are primary dealers in conventional gilts. IL GEMMs are primary dealers in index-linked gilts.
GiltA UK government sterling denominated bond issued by HM Treasury. The term gilt gilt (or gilt-edged) is a reference to the primary characteristic of gilts as an investment - their security.
Gilt tenderThe gilt auction programme in any year may be supplemented between auctions by official sales of gilts of any type or maturity via gilt tenders. Gilt tenders will typically be for existing gilts and for a lower size (in cash terms) than gilt auctions of equivalent maturity. The DMO’s annual remit may specify any plans for sales by gilt tender, and may also set out any rules concerning notice periods, amounts and/or maturities of such operations. Gilt tenders may also be used for market management purposes, replacing the DMO’s ‘tap’ function, which is being discontinued.
Gilt Purchase and Sale ServiceAn "execution only" service for members of the Approved Group wishing to transact in gilts. Administered by Computershare on behalf of the DMO.
IDBsInter Dealer Brokers in the context of the gilt market are those broking firms that provide facilities for dealing in gilts exclusively between GEMM firms, as endorsed by the DMO and the LSE.
Index-linked gilts (IGs)Index-linked gilts are gilts whose coupons and final redemption payment are related to movements in the Retail Prices Index (RPI). There are two fundamental designs of index-linked gilts - those with an 8-month indexation lag launched in 1981 and those with a 3-month indexation lag launched in 2005.
Index ratioFeature applicable to 3-month lag index-linked gilts, which measures, on a daily basis, the growth in inflation since the gilt was issued. The DMO publishes daily index ratios for all 3-month lag index-linked gilts.
Inflation-adjusted accrued interestApplicable to 3-month lag index linked gilts only. For a given day this is calculated by multiplying the real accrued interest amount by the index ratio for the day in question. More details on the method for calculating both the real and the inflation-adjusted accrued interest is described in Section 3 of PDFFormulae for Calculating Gilt Prices from Yields.
Inflation-adjusted clean priceApplicable to 3-month lag index linked gilts only. For a given day this is calculated by multiplying the real clean price by the index ratio for the day in question.
Inflation-adjusted dirty priceApplicable to 3-month lag index linked gilts only. For a given day this is calculated by adding the inflation-adjusted accrued interest to the inflation-adjusted clean price.
Interest yieldThe interest rate based on the actual buying price. It is calculated by dividing the coupon by the clean price. Also referred to as the running yield or flat yield. This measure does not take into account the change in the capital value of the bond.
"Irredeemable" gilt An inaccurate term sometimes used in connection with undated gilts, all of which have now been redeemed.
LiquidityA word describing the ease with which one can undertake transactions in the particular market or instrument. A market where there are always ready buyers and sellers willing to transact at competitive prices is regarded as liquid. In banking, the term is also used to describe the requirement that a portion of a bank's assets be held in short-term risk free instruments, such as government bonds, Treasury bills and high quality Certificates of Deposit (CDs).
Long-maturity giltsInstruments with a residual maturity of over fifteen years.
LSELondon Stock Exchange.
Market valueThe value of an asset if it were sold in the market at its current price.
Maturity dateThe date on which a dated gilt is redeemed.
Medium-maturity giltsInstruments with a residual maturity of between seven and fifteen years.
Multiple price auctionAuction format used for the sale of conventional gilts at which all successful bidders pay the price they bid.
NAONational Audit Office.
Near maturity gilt purchasesThe DMO can buy in gilts within the last twelve months of their life to help manage redemption cash flows.
NLFNational Loans Fund, the account that brings together all Government lending and borrowing.
Nominal amount/valueThe face or principal value of a gilt.
Nominal amount/value upliftedApplicable to index-linked gilts: this is the nominal amount uplifted by inflation since the gilt was issued.
Non-competitive bid A bid where no price is specified; such bids are allotted at the weighted average price of successful competitive bid prices, or for index-linked gilts, the single strike price.
Operational Market NoticesThese documents set out the DMO's operations and procedures in the gilt or sterling money markets.
Post Auction Option FacilityOn 2 June 2009, the DMO introduced a post-auction facility giving an option to successful bidders (both GEMMs and investors) to purchase additional stock up to 10 percent of the amount allocated to them at the auction. From 1 April 2016, this amount was increased to an allowance of up to 15%. This option window opens at 12.00 noon on the day of the auction and closes at 2.00pm on the day of the auction. The additional stock will be available to successful bidders at the average accepted price at conventional auctions and the single clearing (or strike) price at index-linked auctions.
Primary marketThe issuance of gilts by the DMO at its operations.
Principal stripSeparately traded cash flow, which is part of the principal or redemption payment on a strippable gilt.
PWLBPublic Works Loan Board. The PWLB has the functions of lending money from the National Loans Fund to local authorities, and collecting the repayments. The PWLB has been part of the DMO since July 2002.
PRAPrudential Regulatory Authority.
Quasi-coupon dateThe dates on the semi-annual cycle defined by the final maturity date irrespective of whether actual cash flows occur on those days.
Quasi-coupon periodThe period between two consecutive quasi-coupon dates.
Real clean priceApplicable to 3-month lag index-linked gilts only. The quoted market price for a 3-month lag index-linked gilt, excluding any measure of the inflation uplift.
Redemption dateThe date on which a dated gilt is redeemed. Also referred to as its maturity date.
Redemption yieldThe constant rate of interest at which all future payments (coupons and redemption) on a bond are discounted so that their total equals the current dirty price of the bond (inversely related to price). Also referred to as the yield to maturity. The method for calculating yields in the gilt market is described in Section 1 of PDFFormulae for Calculating Gilt Prices from Yields.
RegisterRecord of ownership of securities. For all gilts except those that are bearer bonds, entry in an official register confers title.
RegistrarThe body responsible for maintaining a register of holdings of gilts and making coupon and redemption payments to holders of gilts. This function has been carried out by Computershare Investor Services plc since December 2004.
RepoSale and repurchase agreement. A combined transaction providing for the sale and subsequent repurchase of (in this context) a gilt.
Repo rateThe return earned on the cash leg of a repo transaction, expressed as an annual interest rate.
Retail Prices Index (RPI)An index published each month by the Office for National Statistics, which measures the level of retail prices in the UK. Cash flows on all index-linked gilts are linked to the RPI.
Reverse auctionAn auction under which the holders can offer to sell a gilt back to the DMO. The DMO would accept the gilt(s) offered to it at the most favourable price(s).
Rump giltA relatively small gilt (in terms of nominal outstanding) as declared by the DMO, in which GEMMs are not required to make a market, but for which the DMO will be prepared to make a bid price if requested by a GEMM. There are currently no gilts in issue declared as rump gilts.
Secondary marketWhere investors purchase gilts from other investors rather than from the issuer.
SettlementExchange of gilt for assurance of payment; the conclusion of a securities transaction by delivery.
Settlement bankA bank, which agrees to receive and make assured payments for stocks and bonds, bought and sold by a CREST member.
Settlement dateDate on which transfer of gilt and payment occur; by convention in the gilt market the next business day after the trade is conducted (T+1), although other settlement dates may be negotiated bilaterally.
Short-maturity giltsInstruments with a residual maturity of up to seven years.
Source giltThe gilt, which will be replaced following a switch or conversion offer.
Special Repo FacilityIf the DMO considers that there is sufficient evidence of severe market dislocation or disruption, it may create gilt(s) via the special repo facility (a discretionary facility) for repo-ing to any GEMM that has signed the required legal agreements with the DMO. The terms of the facility, including any rate of repo, which may or may not be penal, and the amount of gilt(s) available for creation, will be announced by the DMO.
SpreadFirstly the difference between the price at which a market maker will buy and sell a gilt (bid/offer spread); and secondly the difference in yield between two bonds, (e.g. the 10s/30s spread will refer to the difference between the yield on a 10-year bond and the yield on a 30-year bond).
Standing Repo FacilityA non-discretionary facility introduced by the DMO in 2000 under which the DMO will, if asked by one of its counterparties, create and repo out the requested amount of a specified gilt - usually overnight - at a pre-announced rate below the prevailing Bank of England Official Bank Rate.
Strike priceThe strike price or strike rate of an option is the price or rate at which the holder can insist on the underlying transaction being fulfilled. The strike price also refers to the price at which bids are filled in an index-linked gilt auction.
StripsSeparate Trading of Registered Interest and Principal Securities; for some ("strippable") gilts, the coupons and principal can be traded separately.
Switch auctionSwitch auctions are intended as a tool to build up benchmark gilts at a time of low outright issuance, by switching a proportion of a source gilt into a new current coupon gilt.
SyndicationSyndication is a process whereby an issuer appoints a group of banks to manage the sale of a bond on its behalf.
TailDifference between the yield at the weighted average accepted price and that at the lowest accepted price at an auction. Expressed in basis points.
Treasury billA zero-coupon sterling denominated instrument of up to 12 months maturity when first issued. Treasury bills are issued at a discount and redeemed at par.
Treasury bill tenders Treasury bills are issued at weekly tenders, held by the DMO on the last business day of each week (i.e. usually on Fridays). The DMO announces the size of the following week's tender and the maturity of the Treasury bills on offer at the preceding week's tender.
Undated giltsOld - now all redeemed - gilts for which there was no final date by which the gilt had to be redeemed. (Please note, the final undated gilts were redeemed in July 2015).
Uniform price auctionAuction format used for the sale of index-linked gilts at which all successful bidders pay the same clearing (or strike) price at the auction.
Uplifted nominalApplicable to index-linked gilts: this is the nominal amount uplifted by inflation since the gilt was issued.
When-Issued (WI)("Grey") market in a gilt, which is shortly to be sold at auction. These are trades which are for settlement on the day of issue, normally the business day after the auction. The WI period begins on the day that the size of the auction is announced (typically the Tuesday of the week before the auction). Effective from 31 March 2015 the WI period refers to new issues only.
Yield curveIn its simplest form this is the mathematical relationship between yield and maturity computed across all gilts.

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