Pensions – definitions – Bond funds (corporate bonds and gilts)

UK government bonds are known as gilts and company bonds are called corporate bonds. Either way they are loans where the borrower pays the holder interest and agrees to repay the loans at a specific date in the future. Bonds are traded like shares with values tending to rise when interest rates fall and vice versa.

Bonds, especially gilts, are perceived as lower risk, because a government is unlikely to go bust. The yields on corporate bonds are higher because of the greater likelihood of company failing.

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