How To Buy UK Bonds?

How To Buy UK Bonds?

The stock market is home to a variety of securities for investors of all risk profiles. Investing in bonds is one of the most popular ways of securing and building wealth. Government bonds, in particular, are very popular for the stability and investor confidence they bring. Millions of individual and institutional investors flock to the market to buy up the treasury bonds issued by developed countries. The United Kingdom, which is a major global financial hub, is an attractive destination for foreign investors to tap into when considering fixed-income securities. But why?

To answer this question, it is important to consider the core purpose of investing in bonds and the added layers of security that come with government-backed securities, in the case of the UK:

  • Bonds are fixed-income securities that do not require active management and oversight
  • They generate stable cash flows every quarter (or bi-annually) 
  • Government bonds allow investors to reduce the aggregate risk exposure of their portfolios

UK government bonds, or gilts, are some of the most in-demand securities on the market. If you are considering investing in UK bonds, but don’t know where to start - this investfox guide is for you. 

"Every portfolio benefits from bonds; they provide a cushion when the stock market hits a rough patch. But avoiding stocks completely could mean your investment won't grow any faster than the rate of inflation." - Suze Orman

What Are UK Bonds?

Before diving deeper into the process of buying UK bonds, we must first understand what they are and why they exist. UK bonds, or any government securities in general, are issued by the national treasury to raise capital for the national budget, which will then be used to fund various activities and government programs. 

Governments can issue debt securities for internal and external investors and the size of the issue, as well as maturity and other factors, can vary based on the purpose and market of the issue. Generally, governments issue bonds for a few different reasons, such as:

  • Public spending - The UK government may issue bonds to raise additional funds to finance various public spending initiatives, such as infrastructure and welfare, or to increase funding for a certain cause/program
  • Managing national debt - New bond issues might be used to refinance existing bonds, which is common practice among national governments
  • Monetary policy - The Bank of England may issues bonds to control the money supply and manage inflation within the economy
  • Attract foreign investment - The UK government may issue bonds to attract foreign investment to the country to help boost economic growth

5 Key Concepts To Know About Bonds

First-time investors may want to know the key concepts behind how bonds work to make the most of the offerings on the market. Some key concepts to consider when choosing which bonds to invest in include:

  • Principal - the principal amount is the total amount issued and represents the value that is payable to the investors (excluding coupons)
  • Bond price - the price of the issued bonds can fluctuate considerably on the secondary market, while they are purchased at face value on the primary market
  • Maturity - this is the life cycle duration of the bond, after which the principal is paid back to investors 
  • Coupon date - this is the exact date when investors will be paid the coupon on their principal investment. Coupons can be paid annually, biannually, quarterly, or monthly, depending on the bond type and duration
  • Coupon rate - this is the percentage of the principal that is attributable to the investor annually. For example, an investment with a principal of GBP 100,000 with a coupon rate of 3% would mean that the investor is paid GBP 3,000 throughout each year until maturity 

Ways To Buy UK Bonds

There are a few ways to gain exposure to the UK bonds market, which include direct ownership, as well as related securities trading and bond fund investments. 

Primary & OTC Markets

When the UK government issues bonds, it is done so using an auction. These auctions attract major institutions, such as banks, who then sell them on the secondary market, where anyone from individual investors to multinational corporations can invest in the bonds. 

While a decent number of UK government securities can be bought on the London Stock Exchange (LSE), a majority of UK bonds are traded on OTC markets, which is done via registered brokers. 

The HM Debt Management Office is the destination for investors who wish to directly invest in UK bonds. Otherwise, they can also invest in bond funds and ETFs, which are faster options for most investor types. 

Bond Funds & ETFs

Investors who do not want to invest in individual bonds have the option to put their capital in bond funds and ETFs

Bond ETFs are especially attractive to investors, as they offer low fees, are easy to buy and sell and charge low management fees. 

One such popular UK bond ETF is BlackRock’s iShares Core UK Gilts UCITS ETF, which includes a few subset ETFs that invest in UK bonds of varying maturity dates. 

Bond Futures

Conversely, investors who wish to speculate and hedge against interest rates can buy bond futures. This can be done using CFDs and includes the ability to use leverage. 

However, leveraged products, such as CFDs, can be very risky and are generally not advisable for beginner investors. 

"Traditional investment vehicles such as IRAs, CDs, stocks and bonds do have their place, but for the rich, they are used more as temporary storage facilities rather than life-long homes." - Bo Bennett

Factors That Affect The Price Of UK Bonds

Bond prices can fluctuate greatly on the secondary market and there are a few key factors that can affect this, such as:

  • Interest rates - when interest rates rise, bond prices tend to fall, and vice versa
  • Inflation - the rate of inflation can also affect bond prices. If inflation is expected to rise, bond prices may fall because the purchasing power of the bond's fixed interest payments will decrease
  • Credit rating - the credit rating of the issuing country also has a great influence on bond yields, as countries with a higher probability of defaults need to reflect this risk by offering higher returns
  • Geopolitical risks - geopolitics can have a significant impact on the investments made into a country’s economy. If the political environment of a country is unstable, investors are unlikely to take the risk; prompting the government to raise interest rates to maximize returns 
  • Supply and demand - like any asset, bond prices are also affected by supply and demand. If there is high demand for a particular bond, the price will likely rise, and vice versa

Pros and Cons Of Buying UK Bonds

Before investing in UK bonds, it is important to consider the major advantages and disadvantages associated with the investment to better manage expectations and make the most of your investment. 


  • Stability and Safety - UK Government bonds, also known as gilts, are considered to be one of the safest investments in the world. The UK government is very creditworthy and has a stable political and economic environment, which makes investing in its bonds a secure option
  • Fixed Returns - UK bonds offer fixed returns, which means that investors can predict their earnings with a high degree of accuracy. This predictability can be especially helpful for conservative investors
  • Diversification - Investing in UK government bonds can help diversify an investor's portfolio, as they are typically considered to be a low-risk investment. Diversification can help reduce risk and increase returns in the long run
  • Liquidity - UK government bonds are highly liquid, which means that they can be easily bought and sold in the market. This liquidity provides flexibility for investors who may need to sell their investments quickly
  • Tax Benefits - UK government bonds are exempt from income tax, which can provide tax benefits to investors. Tax exemptions can maximize the total yields from bond investments 


  • Low Returns - While UK government bonds are considered to be safe, they typically offer lower returns compared to other investments, such as stocks or corporate bonds. This can be a disadvantage for investors looking for higher returns on their investments
  • Interest Rate Risk - Like all fixed-income investments, UK government bonds are sensitive to changes in interest rates. If interest rates rise, the value of existing bonds may decline, which can result in losses for investors who sell their bonds before maturity
  • Inflation Risk - Inflation can erode the purchasing power of fixed-income investments, including UK government bonds. If inflation rates rise, the real value of the returns from UK government bonds may decrease, which can be a disadvantage for investors looking to maintain the purchasing power of their investments
  • Currency Risk - UK government bonds are denominated in British pounds, which means that investors who are not based in the UK may be exposed to currency risk. Fluctuations in exchange rates can affect the returns that investors receive when they convert their earnings back to their home currency
  • Market Risk - The price of UK government bonds can be affected by market conditions, such as changes in economic or political conditions. This can result in fluctuations in the price of the bonds, which can be a disadvantage for investors looking for stable returns

Key Takeaways From How To Buy UK Bonds

  • UK bonds, which are often called gilts, are generally viewed as low-risk investments and offer low yields
  • Investors can buy UK bonds through brokerages on the secondary market, where the market price of the bonds can fluctuate significantly
  • Investors need to consider the maturity, coupon dates, and rates when choosing which bonds to invest in 
  • Investors can also invest in bond funds and ETFs, or trade CFDs to hedge against interest rates 
  • Bond prices can be affected by a broad range of factors, such as supply and demand, geopolitics, interest rates, etc. 
  • While UK bonds are some of the safest investments, they also offer lower returns, which can be a dealbreaker for investors seeking higher returns

FAQs On How To Buy UK Bonds

Should you buy UK bonds?

Investors looking for a stable investment with a modest and predictable annual return may choose to invest in UK government bonds. The UK has a robust economy and has very little risk of default, which can be a plus for investors. 

Why does the UK issue bonds?

The UK issues bonds for a variety of reasons, such as to raise funds for public spending and welfare programs, refinance prior borrowings, improve infrastructure, etc. 

Do UK bonds have high returns?

Investors seeking high returns may find themselves disappointed by UK government bonds, as they offer annual returns of between 3-4%, which can be an issue during periods of high inflation.