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London! London! : Osborne Bonds: UK proposes a 100 year gilt

English: George Osborne MP, pictured speaking ...

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In another departure from convention, Chancellor George Osborne mooted the idea of a perpetual Sovereign Treasury issue that will pay interest perpetually but Principal will never be redeemed. In a bid to catch on to a permanent body of debt onthe Treasury balance sheet which will allow UK to forget about its thorny Debt to GDP ratio, in keeping with the expectations from the nature of Government support for financial Agencies and for development expenditure, the bonds could work but investors are trying to wriggle out of the proposition with arguments about low locked in yields. UK has done it before exchanging bonds in 1853 for the South Sea bubble securities andf then more liquid War Bonds issued in 1932, both probably still valid currency for the holders.

The 10-Y UK Gilts pay 2.17% yield and the longest standing 2060 bonds oay as much as 3.22%. Chancellor Osborne feels the current low interest environment is a good bet to lock in interest rates and is likely to find more than a few good investors for the bonds. A 100 year bond , close to being perpetual would probably need to yield more than 4% to catch a perennial stream of investors though a one-off issue could easily rake in a GBP 40-50 bln too at even sub 3% yields, close to LIBOR 6 month rates

The FT exclusive suggests Pension Funds could be a interested class of investors.

 

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One comment on “London! London! : Osborne Bonds: UK proposes a 100 year gilt

  1. Pingback: US Economy: No news is good news and the MBA report | The Banking and Strategy Initiative

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