Gilt Yields Explained: Running Yield vs YTM

Two gilts can pay the same coupon and still hand you very different returns. The reason hides inside the word "yield". Most quote screens show more than one figure, and the two you will meet most often are the running yield and the yield to maturity. Knowing which is which saves you from nasty surprises.

This guide walks through both, using a real gilt from our live data as the example. By the end you will know when each number is useful and when it quietly misleads.

What a gilt actually pays you

A gilt has two moving parts. There is the coupon, the fixed interest it pays each year based on its face value of £100. And there is the price, which is whatever the market charges you to buy it today. The price moves around. The coupon does not.

Take UK Treasury 6% 2028. The coupon is 6%, so for every £100 of face value you receive £6 a year, split into two payments. Simple enough. The catch is that you do not pay £100 for it. At the moment it trades at a clean price of 102.75, slightly above its face value.

That gap between what you pay and the £100 you get back at maturity changes everything.

Running yield: the income snapshot

Running yield answers one question. For the cash I put in today, how much income do I get each year?

The sum is quick. You divide the annual coupon by the price you pay, then multiply by 100.

For UK Treasury 6% 2028:

• Coupon: £6 a year
• Price: £102.75
• Running yield: 5.84%

So £6 of income on £102.75 spent works out at 5.84%. That matches the running yield shown in the data. Because you paid a bit more than £100, your income percentage drops below the headline 6% coupon.

Running yield is handy if you care mainly about the cash landing in your account each year. Income investors like it. But it ignores something big.

What running yield leaves out

Here is the blind spot. You paid 102.75 for this gilt. When it matures, the government repays exactly £100, not a penny more. That means you take a small capital loss of 2.75 per £100 held to the end.

Running yield says nothing about that loss. It only looks at the income. For a gilt bought above £100, the real return is lower than the running yield suggests.

The opposite happens with a cheap gilt. Look at UK Treasury 0.875% 2033. It trades at just 75.64. Its running yield is only 1.16%, because the coupon of 0.875% is tiny. If you judged it on income alone, you would walk straight past it. Yet at maturity you get back £100 for something you bought at 75.64. That built-in gain is pure profit, and running yield ignores it completely.

Yield to maturity: the full picture

Yield to maturity, usually shortened to YTM, fixes that blind spot. It rolls three things into one figure:

• The coupons you receive along the way
• Any capital gain if you bought below £100
• Any capital loss if you bought above £100

YTM is the total annual return you would earn if you held the gilt to the end and reinvested the coupons at the same rate. It assumes you buy now and wait all the way to maturity.

Back to UK Treasury 6% 2028. Its YTM is 4.65%. Lower than the running yield of 5.84%, and that makes sense. The generous income is dragged down by the small loss you take when the price falls from 102.75 to £100 at maturity.

Now the cheap gilt. UK Treasury 0.875% 2033 has a YTM of 5.16%, far above its running yield of 1.16%. The low income is more than made up for by the climb from 75.64 back to £100. Judged on YTM, the two gilts are much closer than their income figures imply.

A simple rule of thumb

The relationship between the two yields follows a pattern:

• Price above £100 (a premium): running yield is higher than YTM. Example: UK Treasury 6% 2028, running 5.84% versus YTM 4.65%.
• Price below £100 (a discount): running yield is lower than YTM. Example: UK Treasury 0.875% 2033, running 1.16% versus YTM 5.16%.
• Price near £100 (around par): the two figures sit close together. Example: UK Treasury 4.75% 2030 at a price of 99.64, with a running yield of 4.77% and a YTM of 4.84%.

Spotting which situation you are in tells you at a glance whether the income figure is flattering or understating your true return.

Which number should you use?

It depends on what you want from the gilt.

If you need steady income and plan to sell before maturity, running yield tells you what the cash flow looks like relative to your outlay. Retirees drawing an income often start here.

If you want to compare gilts fairly, or you intend to hold until the repayment date, YTM is the better tool. It is the figure that lets you line up a high-coupon gilt against a low-coupon one and judge them on equal footing.

Most serious comparisons lean on YTM, because it captures the whole journey rather than just one year of it. Still, both numbers have a place, and the smart move is to read them together.

The catch with YTM

YTM is a projection, not a promise. It assumes you hold to maturity and that you can reinvest each coupon at the same rate, which rarely happens in real life. Sell early and your actual return depends on the price on that day, which could be higher or lower. Interest rates move, and gilt prices move with them.

Tax matters too. Gilt coupons are taxable as income outside a tax shelter such as an ISA, while the capital gain on a gilt is free of capital gains tax. That can make a low-coupon, deeply discounted gilt more attractive after tax than its YTM alone suggests. Your own circumstances decide the outcome.

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This article is for general information and education only. It is not personal financial advice or a recommendation to buy any particular gilt. The prices and yields quoted are as of 6 October 2026 and will change. Gilt prices can fall as well as rise, and you may get back less than you invested if you sell before maturity. If you are unsure, speak to a regulated financial adviser.

Important disclaimer

This article is for information only and is not financial advice. Gilt prices and yields move daily and your capital is at risk. Always do your own research or speak to a regulated financial adviser before investing.