You’ll often hear on the news that “gilt yields jumped” or “Treasury yields hit a new high”. This guide explains what that actually means, in plain English. To see the latest numbers, visit the Bonds & Yields page.
What is a bond?
A bond is simply a loan that you can buy and sell. When you buy a bond, you’re lending money to a government or a company. In return they promise to:
- pay you a fixed amount of interest each year (the coupon), and
- pay back the original amount (the face value) on a set date (the maturity date).
Gilts vs Treasuries
- Gilts are bonds issued by the UK government. The name comes from the gold (“gilt”) edges on the old paper certificates.
- Treasuries are bonds issued by the US government. Strictly, short ones are called bills, medium ones notes and long ones bonds, but most people just say “Treasuries”.
Both are seen as among the safest bonds in the world when it comes to getting your money back, because they’re backed by large governments that can raise taxes and borrow in their own currency. That doesn’t mean their prices can’t move, though, as you’ll see below.
Three words to know: coupon, face value and maturity
Imagine a gilt with these features:
| Feature | Example | What it means |
|---|---|---|
| Face value | £100 | The amount paid back at the end |
| Coupon | 5% a year | You get £5 a year in interest (5% of £100) |
| Maturity | 10 years | The date the £100 is paid back |
The coupon is fixed when the bond is first sold and never changes. But the bond’s price in the market can go up and down every day.
What is a “yield”?
The yield is the return you’d get if you bought the bond at today’s price. The simplest version, called the current yield, is:
Yield = yearly coupon ÷ price you pay
If you buy our gilt for exactly £100, the yield is £5 ÷ £100 = 5%.
Why prices and yields move in opposite directions
This is the bit that confuses most people, so here’s a simple example.
You own the 5% gilt above. A year later, interest rates in the economy rise, and new gilts now pay 6%. Nobody wants to pay £100 for your bond paying £5 when they could get £6 from a new one. So the price of your bond falls until it becomes a fair deal.
| Price someone pays | Yearly coupon | Current yield |
|---|---|---|
| £110 | £5 | £5 ÷ £110 = 4.55% |
| £100 | £5 | £5 ÷ £100 = 5.00% |
| £90 | £5 | £5 ÷ £90 = 5.56% |
| £83.33 | £5 | £5 ÷ £83.33 = 6.00% |
So: when prices go down, yields go up, and the other way round. The coupon is fixed, so the only way the return can change is through the price.
Bonus point: professionals usually quote the yield to maturity, which also counts the gain or loss you make when the bond pays back £100 at the end. For example, if a bond with one year left pays a £5 coupon and you buy it for £96, you receive £105 in a year. Your profit is £105 minus £96, which is £9, and £9 ÷ £96 = 9.375%. The idea is the same: a lower price means a higher yield.
Why do 2-year, 10-year and 30-year yields differ?
Lending money for 30 years is very different from lending it for 2 years, so the yields are usually different too. If you plot the yields for each length of loan on a chart, you get the yield curve.
- Normal (upward-sloping) curve: longer bonds pay more. Investors want extra reward for tying their money up for longer, and for the risk that inflation or interest rates change a lot over the years.
- Flat curve: short and long yields are about the same.
- Inverted curve: short bonds pay more than long ones. This usually happens when markets expect interest rates to be cut in the future, often because they think the economy will slow down. An inverted curve has often come before recessions in the past, but it’s a warning sign, not a guarantee. The US curve was inverted (2-year above 10-year) for a long stretch from 2022 to 2024.
On 16 October 2026 both the UK and US curves sloped upwards (see the snapshot table on the Bonds & Yields page).
What moves yields?
- Interest rates. Central banks (the Bank of England in the UK, the Federal Reserve in the US) set short-term rates. Short-dated bonds, like 2-year gilts, follow expectations for these rates closely.
- Inflation. If prices are rising fast, the fixed coupon is worth less in real terms, so investors demand higher yields.
- Government borrowing. When a government needs to borrow a lot, it has to sell more bonds. If investors are worried about how much is being borrowed, they may ask for higher yields.
- The economy and mood. In scary times investors often rush into government bonds as a “safe haven”, which pushes prices up and yields down.
How can UK investors hold bonds?
- Buying gilts directly. Many investment platforms let you buy individual gilts, just like shares.
- Bond funds and ETFs. These hold lots of bonds at once (for example a fund of UK gilts, or global government bonds). They spread your risk but never “mature”, so their price keeps moving with yields.
- In a Stocks & Shares ISA. Gilts and bond funds can usually be held inside a Stocks & Shares ISA, so the interest and any gains are tax-free. Check with your platform which bonds it offers.
A note on tax
According to GOV.UK, you don’t pay Capital Gains Tax on gains from UK government gilts (GOV.UK: what you pay Capital Gains Tax on). HMRC keeps a list of the gilts that are exempt.
A few things to be aware of outside an ISA:
- The interest (coupon) from gilts is still taxable as savings income.
- The CGT exemption applies to gilts you hold directly. Gains on bond funds and ETFs are generally not covered by it.
- Inside an ISA, none of this matters, because everything is tax-free anyway.
Tax rules depend on your circumstances and can change. Checked on GOV.UK on 19 October 2026.
The risks
- Interest-rate risk. If yields rise, the price of bonds you already own falls. Long bonds (like 30-year gilts) are hit hardest. If you hold an individual bond until it matures, you still get the face value back, whatever happened to the price in between.
- Inflation risk. A fixed coupon buys less if prices rise faster than expected.
- Credit risk. Companies can fail to pay. Corporate bonds usually pay higher yields than government bonds to make up for this risk, and some (called “high yield” or “junk” bonds) are much riskier.
- Currency risk. US Treasuries pay in US dollars, so a UK investor’s return also depends on the exchange rate.
This guide is general information, not financial advice. Your capital is at risk when investing.