3.5% War loan

Surrey_Saver

I inherited £400 worth of 3.5% War loan. I know this is an investment the Govenment refuse to repay, but it does still trade.

Given the dismal savings interest rates does it seem like a good buy now given the 3.5% fixed interest?

purch

Surrey_Saver wrote: »

I know this is an investment the Govenment refuse to repay, but it does still trade.

Yes

The trading symbol is WAR

It has traded between 100.5 to 79 over the last 12 months, currently trading at about 83.20

Note the Government does not refuse to redeem this security. It is a perpetual issue, with no maturity date, although the DMO can call this issue at any time at 100.

grey_gym_sock

purch wrote: »

currently trading at about 83.20

so the running yield is about 4.2% - i.e. it'll pay interest which is about 4.2% of what you'd get if you sold them now.

the interest paid is fixed (unless/until HMG chooses to redeem the stock), but the capital value could vary dramatically (unless they're redeemed, when it would go to 100).

Wywth

Not sure if this graph is correct, but if it is I don't think now is the time to buy (unless there is some mutter from the gutter I am not aware of)

barak

purch wrote: »

.....Note the Government does not refuse to redeem this security. It is a perpetual issue, with no maturity date, although the DMO can call this issue at any time at 100.

It's true that it is now called a perpetual issue, but the original 1917 issue from which it originates should have been redeemed many years ago and wasn't - in circumstances which are considered to have been a default by Britain.

So beware! It can happen! (but probably won't )

sabretoothtigger

Has the OP held it since 1917. 400 back then would buy a house more or less. Dont buy bonds of countries with declining empires

seem like a good buy

no
100 was amazing, 83 still a great sell in the long term. I bet its been alot lower

Ifts

barak wrote: »

but the original 1917 issue from which it originates should have been redeemed many years ago and wasn't

Also the original issue was paying 5% to start with, later reduced to the 3.5% interest it pays now

Which brings us back to War Loan. In 1919 it accounted for most of Britain’s £7.5 billion national debt. It also carried a 5% coupon, which in 1932 was considered too great a burden for the recession-wracked economy to bear. As the Bond Vigilantes remind us, the remedy was to cut the coupon to 3.5%. To encourage a “voluntary” participation, the Chancellor offered a 1% tax-free bonus to the volunteers if they accepted before the deadline. Since they were going to be given the haircut anyway, 92% of the three million holders accepted. There were no CDSs in those days, but doubtless the Bank would have argued that the UK government was not defaulting on its debt.

http://neilcollinsxxx.wordpress.com/2012/01/13/time-to-redeem-war-loan/

kidmugsy

barak wrote: »

in circumstances which are considered to have been a default by Britain

Only by journalists keen on a story who are confident that their subeditor can craft a mendacious headline for them.

sabretoothtigger

UK defaults all the time, just not totally outright like Russians did. Argentina is trying to argue no default on their debt. Greece tried to argue similar and so on even when people are forced to except less.

Every time they raise the retirement age, its a UK default

talexuser

sabretoothtigger wrote: »

Every time they raise the retirement age, its a UK default

Very true, you pay in National Insurance for many years expecting one set of conditions, only for the rules to be changed as they go along.

Ifts

sabretoothtigger wrote: »

Greece tried to argue similar and so on even when people are forced to except less.

That'll be the controlled/managed default then!