Let's have a look at some important government bond markets outside of the U.S. More specifically, at UK government bonds, commonly referred to as gilts, German government bonds that are also known as bunds, and Japanese government bonds that are often just called JGBs. Now, in all of these countries, we will find a similar range of bonds offered to investors. They are discount instruments, fixed coupon bonds, and inflation-linked bonds. However, there are differences in terms of the maturity spectrum and of course in the technical details, like for example, coupon payment frequency, day count and calendar conventions, et cetera. Now, while an index analysis of these technical differences goes way beyond the purpose of this video, let's have a quick look at each of the individual markets, starting with the UK. UK treasury bills are zero coupon debt securities that can be issued with a minimum maturity of one day and a maximum maturity of 364 days. In reality, though, they are regular weekly offerings typically for maturities of one month, three months, and six months. All of them are issued at a discount to face value and repaid at face value at maturity. UK government bonds with an initial maturity exceeding these 364 days are referred to as gilts. The term gilt goes back to the fact that the paper certificates, issued by the Majesty's Treasury, had a gilted edge, but nowadays it's more synonym for safety of these bonds, and gilts exist in two forms. The conventional gilts with fixed coupon payments every six months and a bullet repayment at maturity, and the index-linked gilts, which pay a semi-annual coupon that is adjusted in line with inflation. And the reference index being the UK retail price index, or RPI. The principle amount repaid at maturity is adjusted in line with inflation as well. Conventional gilts are often referred to as short, medium, and long gilts with the residual time to maturity being the differentiator here. Short gilts mature in up to seven years, medium up to 15, and long gilts in more than 15 years. A selected range of these conventional gilts can be stripped, but according to the UK Debt Management Office, the activity in strips markets is minimal. Index-linked gilts are also referred to as IGs or linkers. In contrast to inflation-linked bonds issued by the U.S. government, for example, the principle of UK linkers is not protected in case of deflation. The structure of the German government bond market is very similar. The German government also issues zero coupon securities, which are better known as bubills, and can have a maturity of up to 12 months. However, since 2017, only bills with six months to maturity have been issued. The conventional bonds issued by the German government pay a fixed coupon annually and are repaid in a single amount at maturity and are commonly referred to as bunds. However, that's only partially correct as technically, bunds are conventional German government bonds was a time to maturity of 10 and 30 years at issuance. Bonds with initial maturities of two years are called schatze, bobls have an initial maturity of five years. The German government also issues inflation-linked bonds, also called bundeis. As all coupon-paying German government bonds, these bonds pay an annual coupon and coupon as well as redemption amounts are adjusted by inflation. Like U.S. tips, the principle is protected in case of deflation. And a very similar structure can also be observed in Japan. Treasury discount bills can be issued with a maturity of up to 12 months with regular issuance taking place in three months, six months, and 12 months spans. Conventional JGBs pay semi-annual coupons and are issued with maturities of 2, 5, 10, 20, 30, and 40 years, and inflation index bonds are issued with 10 year maturities.
