A gilt's coupon rate is fixed at issue, while its redemption yield depends on the price paid, the coupons collected and the £100 repaid at maturity, so two gilts with very different coupons can offer the same redemption yield.
The coupon is fixed, the yield is not
A gilt's coupon is set when it is issued and never changes: a 2.00% gilt pays £2.00 a year on every £100 of nominal for as long as it exists. Its redemption yield is a different figure entirely, because it depends on the price the buyer pays. Buy the same gilt at a different clean price and the coupons are unchanged, the £100 repaid at maturity is unchanged, but the return earned by the buyer is not. The coupon describes the gilt; the redemption yield describes the gilt at a price.
That is why the conventional gilts list carries both. The coupon is the same on every day of the gilt's life, so it sorts gilts by what they pay. The redemption yield changes with the market, so it is the column that compares gilts on what they return.
The rate that makes the flows add up
The redemption yield is the single rate at which every future payment — each remaining coupon and the final repayment of £100 — discounts back to the price paid. The per-£100 cash-flow schedule on a gilt's own page, opened from the list, shows the same relationship from the other side: each flow is discounted at the gilt's gross redemption yield, and the total of those discounted flows is the dirty price per £100 nominal. The NPV column on that page is that arithmetic made visible, flow by flow.
It follows that the redemption yield is a summary of the whole remaining life of the gilt, not of any one payment. A gilt with five years to run and a gilt with twenty-five years to run cannot be compared by their coupons, because the coupons say nothing about the price at which each is available. They can be compared by their redemption yields, because those already contain the price.
Two gilts, one yield, two very different coupons
The illustration below puts a low-coupon and a high-coupon gilt of the same maturity side by side on the same semi-annual yield of 4.00% with five years to run. The figures are illustrative and not a quote from any gilt; every input is stated so the relationship can be checked.
| Measure | Low-coupon gilt | High-coupon gilt |
| Annual coupon | 2.00 per £100 | 6.00 per £100 |
| Years to maturity | 5 | 5 |
| Clean price at a 4.00% yield | About 91.02 | About 108.98 |
| Redemption yield | 4.00% | 4.00% |
| Annual income per £100 nominal | £2.00 | £6.00 |
| Capital gain or loss at maturity | About £8.98 gain | About £8.98 loss |
Both gilts return 4.00% to a buyer who holds them to maturity, and they do it in opposite shapes. The low-coupon gilt pays £2.00 a year and returns £100 for a price near £91.02, so most of the return arrives as the pull up to par. The high-coupon gilt pays £6.00 a year and returns £100 for a price near £108.98, so the extra income is offset by the fall from the price paid to par.
The two gilts are not equivalent holdings in every respect: the income they produce is different, and so is the timing of the return. Equal redemption yields mean equal total return on the stated assumption, not equal cash along the way.
Why a discount lifts the redemption yield
A gilt bought below its nominal value is bought at a discount, and the difference between the price and the £100 repaid at maturity is a gain. That gain is earned steadily as the gilt approaches par, so it forms part of the return even though it never appears as an income payment. It is why a gilt with a 2.00% coupon can offer a redemption yield of 4.00%: half the return is the coupon, and half is the pull to par.
The treatment of that gain matters to a UK taxpayer. Under the rules published by GOV.UK, gains on UK gilts are exempt from capital gains tax for individuals, so the pull to par is not taxed as a gain. The coupons are taxed as savings income in the ordinary way. That asymmetry is why a low-coupon gilt bought at a discount can produce a different after-tax result from a high-coupon gilt at a premium, even when the two carry the same redemption yield, and the post-tax yield page is where the two are set beside each other.
What the redemption yield assumes
The figure is not a forecast and not a promise. It assumes the gilt is held to maturity, that every coupon is received in full, and that the coupons are reinvested at the same rate over the remaining life. None of those is certain to hold: a gilt sold before maturity returns whatever its price then implies, and a coupon spent rather than reinvested changes the compounded result.
- The redemption yield assumes the coupons are reinvested at the same rate, which is an arithmetic convention rather than an available product.
- The income yield — the coupon divided by the clean price — ignores the pull to par and is a poorer comparison between gilts of different coupons.
- A gilt held to maturity repays the nominal value, not the price paid, so a price above par implies a capital loss at redemption.
- The yield on the list is a snapshot at the settlement the report was built on, and it moves with the price.
The gilt yield curve sets those snapshots against the fitted benchmark, so a gilt's redemption yield can be read against the yields available at similar maturities rather than in isolation. A single yield says what one gilt returns at its price; the curve says whether that is high or low for its place on the curve.
Background, not advice
This article explains how a gilt's redemption yield differs from its coupon rate; it is general background, not investment, tax or legal advice for any reader's circumstances. Every figure above is illustrative and states its inputs, and the exact yield and price for a gilt come from the site's own calculation against the day's report. The Debt Management Office, GOV.UK and the day's market data are the primary sources for a real coupon, price, yield or tax rule.