The arrival of a new sovereign — or at least, semi-sovereign — bond issuer is sure to grab the attention of institutional investors and asset managers. But Scotland’s new government which took office last month isn’t taking any chances and is reportedly sounding out investors on its bond issuance plans.
The government, led by the Scottish National Party (SNP), is acting on previously articulated plans to issue up to US$2 billion in bonds over the next five years to subsidise infrastructure and other spending. The new bonds are known as kilts, analogous to UK gilts. The SNP has explicitly stated that kilt issuance is part of its plans for eventual independence.
According to Reuters, the government has said it is already meeting with representative industry bodies regarding the plans, and is close to completing the appointment of bankers and legal advisers. It is being advised by EY.
S&P Global Inc and Moody’s Analytics have prospectively rated the bonds AA and Aa3, respectively, similar to current UK sovereign ratings, levels that are important validation for the government’s plans. That said, S&P also warned that it might downgrade the rating if the SNP did proceed towards independence.
Kilt issuance could begin later this year. Analysts have warned that whatever the political context, the Scottish government’s creditworthiness would be decided on the basis of fiscal probity and prudent public spending.
Research from Glasgow University predicts kilts will command interest rates that are probably around 0.3 percentage points higher than gilts for the foreseeable future given that they are trading in a much smaller market. However, the SNP has deemed the costs to be acceptable as the basis for eventual sovereign fiscal and political independence.
Actual market appetite for the bonds is of course still to be tested. Furthermore, the announced plans would only cover some 0.5% of the government’s current annual budget.
Against opposition from Westminster, the Scottish parliament looks likely to back a proposed referendum on independence. With British politics in a fractious state, political factors may trump considerations of economic prudence, a common situation worldwide nowadays.
A BBC Scotland poll early in 2026 found a very narrow majority for independence.
According to the Glasgow University research, a nascent kilt market will provide an effective barometer of the financial cost of independence.
