Gilt-Edged Switching

Gilt-edged switching is more common in the UK market than anywhere else. It basically involves purchasing or selling a high quality gilt (or bond; gilt is Gaelic for gold) issued by the government, then turning around and selling or buying another gilt or bond.

So the idea is to sell one gilt, then buy another one in order to make a profit on the difference. You use the money from one gilt to purchase another. Typically, this is a safe investment option, because gilts hold almost no risk. Hence, they offer little reward.

The process of switching is a kind of bond arbitrage. When it works right.