Gilts - what are they backed with?
Dear Sir or Madam,
I understand that the UK treasury raises funds from foreign and domestic investors using 'Gilts'.
Could you please tell me, as succinctly as possible, what a 'Gilt' is and what it offers as it's 'security' or surety to the purchaser.
For example: If a domestic consumer takes out a secured loan with a private bank then the device used as security will be a tangible asset such as a house or car. The sum borrowed is thus 'guaranteed' for repayment to the bank as it now holds a charge over this physical asset. What is the equivalent security for a government issued 'Gilt'?
Yours faithfully,
Andrew: Smith
Dear Mr Smith
Thank you for your Freedom of Information request. I write to confirm receipt of your request and to let you know that it is receiving attention. If you have any enquiries regarding your request do not hesitate to contact us.
Tessa Caruth
Correspondence and Enquiry Unit
HM Treasury
Please find attached our response to your recent enquiry.
Paul Morran | Information Rights Unit
HM Treasury, 2/SW, 1 Horse Guards Road, SW1A 2HQ
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Your ref: 9/546
Dear Mr Morran,
Many thanks for your letter explaining how Gilts are traded and why it is that investors can buy them with such confidence.
I understand from your answer that the 'security' for any prospective purchaser is simply the fact that the UK Government is a trusted issuer of such instruments. 'triple A rated', so to speak.
May I ask what incomes the Government relies upon to be able to offer this absolute surety of payment of interest and principle on these bonds?
e.g. Is this 'surety' or 'rating' based on the fact that the UK Government can prove the level of funds it is likely, (or guaranteed?) to receive in a given period by collecting Taxes due, fines and the like, (by way of the Government's own various Departments) based on the number of UK citizens of working age? i.e. It's probable or guaranteed income?
Yours sincerely,
Andrew: Smith
Creditworthiness is in the eye of the beholder rather than something the issuer guarantees. As you suggest, credit rating agencies publish assessments.
Paul Morran | Information Rights Unit
HM Treasury, 2/SW, 1 Horse Guards Road, SW1A 2HQ
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Dear Mr. Morran
Nicely sidestepped, but I think you have answered my question...
Would you happen to know which credit rating agency(ies) deals with 'UK plc' and 'determines its 'rating'?
Yours sincerely,
Andrew: Smith
Standard & Poor is one that has been widely reported recently.
Paul Morran | Information Rights Unit
HM Treasury, 2/SW, 1 Horse Guards Road, SW1A 2HQ
Please consider the environment before printing this email.
www.hm-treasury.gov.uk
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