3.5% War loan

Masomnia

barak wrote: »

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 )

And guess who was in power at the time?

As far as I know they issued the new war loan as a perpetual at a lower coupon to redeem the original one, so it wasn't really a default. But I might be wrong about that.

Ark_Welder

£5 War loan 1929-1947 prospectus:
3.5% War Loan prospectus

Masomnia

I love old documents like those

cepheus

I guess that blip down in 2011 is the wrong price, very annoying with charts!

Additionally, because inflation has at times been way above 3 1/2% in the intervening decades, the real returns have therefore been sharply negative, and as recently as 1990 the bond traded at a price below 30 pence in the £. In the 1970s we’re pretty sure the yield of the bond has even been higher than its price – a rare event in bondworld (although Greek bonds have recently seen this happen to them).

http://www.bondvigilantes.com/blog/2011/page/3/

Masomnia

I can't see them calling it, the long dates of UK gilts are the main ace up our sleeve. Even if there is a only a few billion in issue.

Sceptic001

Thanks for that link, cepheus. I was just going to post the question why didn't the DMO redeem this stock when it hit par.

PS. Also good to see Ark Welder posting again.

mulronie

I'm more puzzled as to why the DMO isn't buying some of these things today at market prices. When they can fund at <1% out to 5 years, why not arb the war bonds with a running yield of 4.2%? Surely an instant profit for the exchequer?

Masomnia

mulronie wrote: »

I'm more puzzled as to why the DMO isn't buying some of these things today at market prices. When they can fund at <1% out to 5 years, why not arb the war bonds with a running yield of 4.2%? Surely an instant profit for the exchequer?

Mmm but they'd have a few billion more to find in the next five years when the bonds fall due. They'd have to sell even more gilts in five years when demand and yields are unpredictable, so could end up costing more if interest rates rise. Leaving the War Loan in issue is more expensive but more certain.

sabretoothtigger

HMG was asking to issue 100 year bonds which was refused by market players in general. They still went ahead with 60 yr ones anyway, who wouldnt at such a low cost

I do think they should call in the war loans for the publicity, government makes good on debt.
However it may just highlight how awful those returns were not from default but the currency itself has been so totally dire it makes dollars look pristine

The biggest problem they face is the repayment term. Our average is about 13 and USA is 4 years I think, I believe in 2013 they have to get 6 trillion of buyers. If lenders roll it over, thats ok and if not its Greece
So they love the perpetual loan and they'd have it all like that if possible, the yankies on the other hand are rushing towards disaster