A ladder spreads maturities so capital returns a rung at a time, while a single gilt pays level coupons and returns its whole principal once — and the income per year differs because the ladder's early rungs stop paying when they redeem.
Two shapes of holding
A single gilt buys one maturity: one coupon rate, one repayment date, one lump of principal coming back. A ladder built on the bond ladder designer buys several gilts maturing across consecutive years, so capital returns a rung at a time instead of all at once. Both can be built from the same money and, if the gilts are similar, from the same coupon. The difference is the shape of the cash flow over the years, and that shape decides what the income per year looks like. A reader choosing between them is choosing a pattern of cash, not a coupon rate.
Income per year, ladder against single gilt
The table is an illustration and not a quote from any gilt. It holds the money and the coupon the same on both sides — a £40,000 holding of a notional 4.00 per cent gilt at par — and compares a four-rung ladder of four £10,000 rungs against one £40,000 four-year gilt. The £40,000 and 4.00 per cent are illustrative inputs; the arithmetic is exact.
| Year | Ladder coupon | Ladder capital returned | One gilt coupon | One gilt capital returned |
| 1 | £1,600 | £10,000 | £1,600 | £0 |
| 2 | £1,200 | £10,000 | £1,600 | £0 |
| 3 | £800 | £10,000 | £1,600 | £0 |
| 4 | £400 | £10,000 | £1,600 | £40,000 |
| Total | £4,000 | £40,000 | £6,400 | £40,000 |
The point that surprises readers is the total coupon column. The ladder pays £4,000 of coupon across the four years; the single gilt pays £6,400. The reason is that each ladder rung, once redeemed, stops paying its coupon: by year four only one rung still runs, so only £400 of coupon arrives, whereas the single gilt pays its full £1,600 every year until it returns the whole £40,000. Spreading the capital earlier means losing the coupons of the rungs that have matured, unless those returned principals are put back to work.
What the gross yield says, and does not say
Both sides of that comparison, bought at par and held to maturity with coupons reinvested at the same rate, carry the same gross yield — about 4.00 per cent, the coupon. Gross yield is a per-gilt figure: it is the return if a gilt is held to maturity with its coupons reinvested at the same rate, compounded once a year. It does not distinguish between a level-coupon gilt and a ladder, because it assumes every coupon and every returned principal is reinvested at the same rate. The conventional gilts list carries the gross yield for each gilt the rungs are drawn from.
So the gross yield does not show the ladder-versus-single-gilt difference; the cash-flow shape shows it. If a reader reinvests every ladder redemption at the same rate the gilts yield, the total return matches the single gilt's gross yield. If the rate available when a rung matures is lower, the ladder's realised return falls short of that; if higher, it exceeds it. That is reinvestment risk, and it is the price of spreading the capital rather than locking it all to one date.
What each shape does and does not do
- The ladder returns capital a rung at a time, which a reader can reinvest as each rung matures.
- The single gilt pays level coupons and returns its whole principal on one date.
- The ladder's coupons decline as rungs mature; the single gilt's stay level until it redeems.
- Neither shape removes interest-rate or market risk, and neither guarantees a reinvestment rate.
The ladder suits a reader who wants capital coming back regularly to redeploy; the single gilt suits one who wants the largest coupon for as long as possible and is content to receive the principal once. That is a choice about timing and convenience, not about which pays more in total: reinvested at the same rate, both produce the same gross yield. What differs is when the cash is available and what a reader does with each returned principal.
Reading the trade-off
The honest way to compare the two is to look at the whole cash flow, not only the coupon column. The ladder's lower total coupon is offset by the earlier return of capital, which a reader can reinvest; the single gilt's higher total coupon comes with the whole principal locked until its single maturity. A reader comparing the two should ask what each year's total cash looks like and when the capital is available, rather than comparing one year's income against another's. The ladder's per-year totals fall more gently; the single gilt's jump at maturity. Put alongside each other, the two columns describe the same £40,000 doing two different jobs: one handing a slice back each year, the other holding it all until a single date.
Background, not advice
This article compares a ladder with a single gilt on the same money and coupon, to show how the cash-flow shape differs even when the gross yield matches. It is general background on how the figures are put together, not investment, tax or legal advice for any reader's circumstances. The illustration prices every gilt at par and states its inputs; a reader's own gilts will differ in price and coupon. The primary source for a real gilt's price, coupon and gross yield is the gilt's own record and the day's market data.