A Treasury bill is short-dated government borrowing that pays no coupon and is bought at a discount to face value, while a gilt pays a coupon over a longer life — and the two are measured on different yield conventions.
The government borrows short and long
The UK government raises money across a range of maturities, from a few months to several decades. At the long end sit gilts, which pay a coupon over years and repay their nominal at maturity. At the short end sit Treasury bills, which are a different instrument with a different shape. Both are backed by the same borrower, so the credit is the same; what differs is the term, the way the cash is paid, and the convention used to quote the return.
Keeping the two apart matters because a reader who compares a bill's yield with a gilt's yield without noticing the conventions can draw a misleading conclusion. The figures are related, but they are not computed the same way, and the difference in shape between a bill and a gilt is the reason.
What a Treasury bill is
A Treasury bill is short-term debt issued by the UK Debt Management Office, typically maturing within a year — commonly in one, three, six or twelve months. A bill pays no coupon. Instead it is issued at a discount to its face value and repays the full face value at maturity, so the return is the difference between the price paid and the amount repaid. There are no half-yearly payments along the way; the whole return arrives at the end.
Because a bill has no coupon, it behaves in a pure form like a zero-coupon instrument over a short horizon. Its price is close to its face value and rises toward it as maturity approaches, with the gap being the return. That short horizon is what makes a bill a money-market instrument rather than a bond: it is a place to hold cash for months, not for years.
Bills serve a different purpose from gilts. They are a way for the government to manage the timing of its cash — bridging the gap between when money is needed and when tax receipts or longer-term borrowing arrive — rather than a long-term funding tool. For a buyer, a bill is a short, low-movement place for cash, where the return is small in cash terms but the price barely moves.
What a gilt is by comparison
A gilt pays a fixed coupon twice a year for the length of its life and repays its nominal at maturity, which may be many years away. Where a bill's return is the discount at which it is bought, a gilt's return combines its coupons, the price paid and the nominal repaid. A short-dated gilt sits closest to a bill in behaviour: with little time left, its price is near £100 and its coupon income is collected over a short window. A long gilt is a very different proposition, with years of coupons and a price that can move a long way.
| Feature | Treasury bill | Gilt |
| Term | Usually under a year | Years to decades |
| Coupon | None — bought at a discount | Fixed coupon, paid twice a year |
| Return comes from | The gap to face value | Coupons, price and repayment |
| Yield convention | A money-market basis, on actual days | Gross yield or DMO yield |
| Issuer | The Debt Management Office | The Debt Management Office |
Two conventions worth naming
The site quotes a gilt's return two ways. Gross yield is the yield if you hold the gilt to maturity, with coupons reinvested at the same rate, compounded once a year. DMO yield is the same yield under the UK Debt Management Office's market convention: coupons twice a year, counted on actual days. The two describe the same gilt but assume slightly different compounding, which is why they differ by a small amount.
A bill's return is quoted on a money-market basis — calculated from the discount and the actual number of days to maturity — which is closer in spirit to the DMO convention than to the once-a-year gross yield. That is the point a reader needs to carry: when a bill's money-market yield is set beside a short gilt's yield, the conventions should be aligned before the figures are compared, or the comparison will be off by the compounding assumption rather than by anything in the market.
Reading a short gilt against a bill
The natural comparison is between a bill and a short gilt of similar maturity, taken from the same curve so that both are priced on the same day. The yield-curve page plots every priced gilt against its fitted benchmark, which is where a short gilt's yield for comparison comes from. The conventional gilts list carries the coupon, price and yield for each gilt, so a reader can find the short end and see how it is priced.
Because a bill pays no coupon, its yield and a short gilt's yield are measuring return over a similar horizon but from different cash-flow shapes. For a very short gilt the two can be close; the further out the gilt's maturity, the more the coupon-like structure and the price movement separate it from a bill. The comparison is a way to see the market's pricing at the short end, not a like-for-like product match.
The comparison is most meaningful for the shortest gilts, where the horizon matches a bill's. As the gilt's maturity lengthens, its coupon income and its price movement grow, and the comparison with a bill becomes a comparison of different things. Matching the maturity matters more than matching the issuer, because it is the time to repayment that shapes both instruments' behaviour.
Background, not advice
This article explains how Treasury bills and gilts differ; it is general background, not investment, tax or legal advice for any reader's circumstances. A bill held to maturity returns its face value, while a gilt's price can move before maturity. Real yields and issue details for either instrument come from the Debt Management Office and the day's market data, which are the primary sources.