A gilt-edged bond generally refers to a type of high-quality debt. The bond now belongs to a global bond that is issued by governments or companies with a demonstration of long-term financial stability. Because of gilt-edged bonds’ capacity to produce strong earnings, pay bondholders on time and avoid default, the bond can equal to a superior investment-grade debt, which means the bond has high credit quality.
The term “regular bond” is generally used to represent various kinds of bonds, including municipal bonds, mortgage bonds, high-yield bonds, corporate bonds, and so on.
Sometimes, gilt-edged bonds can be included in the broad category of regular bonds. Yet, in most cases, regular bonds refer to those more speculative and riskier bonds with lower credit quality, compared with gilt-edged bonds.
A gilt-edged bond is almost deemed as the safest bond second only to the U.S. Treasury bond. However, “safety” is a double-edged sword in terms of bonds because low risk usually leads to low returns. In many cases, the yields provided by a gilt-edged bond are far below the yields produced by those riskier regular bonds.
For instance, on a specific day, a 10-year gilt-edged bond with an interest rate of 4.25% may produce a 1.2% yield. By contrast, a 10-year corporate bond with a 12% interest rate has a yield of 5.13% under the same condition.
Therefore, if you want to gain profits in a more stable way, or you prefer to use a portion of your portfolio to preserve the capital, gilt-edged bonds may be a good choice. On the other hand, if you are an aggressive investor, willing to bear more risks for higher returns, then you might make more investments in regular bonds.