Lend money at a fixed rate and you have created something tradeable: a stream of known payments from a named borrower. What that stream is worth to someone else depends on two things — where interest rates have moved since, and whether the borrower still looks good for it.
This is the largest asset class in the world and the least visible. The UK government alone has well over two trillion pounds of it outstanding, and its price sets the floor under mortgages, pensions and corporate borrowing.
UK gilts
IOUs from HM Treasury: the benchmark for sterling interest rates, the backbone of UK pensions, and in 2022 the epicentre of …
No. 015Corporate bonds
Company debt, sold in large denominations to institutions, where you take credit risk for a spread over government yields.
No. 017Distressed debt
Buying other people’s bad debts at a discount, either to restructure the borrower or to collect more than you paid.
No. 033High-yield bonds
Debt from borrowers the rating agencies do not trust, paying a large spread that is sometimes compensation and sometimes a w…
No. 034Index-linked gilts
Gilts whose coupon and principal rise with RPI, which makes them inflation protection with an unusually sharp set of teeth.
No. 047Peer-to-peer loans
Lending directly to individuals and small businesses through a platform, an asset class that grew fast, broke publicly, and …