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What Are Gilt-Edged Securities?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 September 2016
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    Conjecture Corporation
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Gilt-edged securities are bonds that are issued by governments or by various types of firms that are well recognized and considered extremely stable in terms of market presence and financial resources. High-grade bond issues of this type are considered to be very safe, owing to the solid backing possessed by the issuer. Securities of this type are often referred to as blue chip stocks or bonds, since the issuers have the reputation and resources necessary to be considered blue chip companies or entities.

There are several characteristics that help define gilt-edged securities. One has to do with the past performance of the issuer. Typically, the issuer will have an established history of generating returns on a continual basis, and is known to have all the financial resources in place to honor all commitments related to paying dividends on stock issues, as well as to manage any interest payments that may be associated with the bond issues. For the investor, this means that the chances of experiencing some sort of loss due to a failure of the company issuing the security are extremely low.

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Another aspect of gilt-edged securities is that the returns offered on the investments are usually very competitive with other offers in the marketplace. This is true even with other investment opportunities that may offer the possibility of similar returns but carry a higher level of volatility. While securities of his type may be somewhat more expensive in terms of the amount of the bond issue or the price per share of stock, the ability to generate a steady return without taking on a lot of risk makes the securities of great interest to investors.

Even though the degree of volatility is somewhat decreased by the well-established financial stability of the issuer, this does not mean the potential for loss is completely eliminated. For example, gilt-edged securities such as corporate bonds may still be called early, resulting in a lower return that the investor originally anticipated. In like manner, and stock options that are considered gilt-edged securities are still subject to events happing in the marketplace, including changes in consumer tastes that result in less demand for the products sold by the issuer, loss of confidence in the issuer due to changes in leadership within the organization, and even aggressive efforts by competitors to capture more market share. As a result, even gilt-edged securities should be evaluated thoroughly before moving ahead with the purchase.

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