Thursday 19 October 2017

Britain planning to revive 100-year bonds

Chancellor George Osborne is to unveil proposals for loans which will not be repaid by the Treasury for 100 years or more
Chancellor George Osborne is to unveil proposals for loans which will not be repaid by the Treasury for 100 years or more

BRITAIN is proposing to revive "perpetual gilts," first used in the wake of the 1720 South Sea Bubble crisis, to allow the government to borrow for as long as possible at record-low rates, news reports said yesterday.

Chancellor of the Exchequer George Osborne will use next week's budget to announce a consultation on introducing government bonds of up to 100 years and reviving debt with no fixed maturity, a sort of bond first issued in the 19th century to put off repaying debt resulting from the South Sea Bubble.

The cost of 10-year borrowing for the UK fell to a record low earlier this year as investors sought a haven from the euro-region debt crisis and the Bank of England bought gilts to help stimulate the economy.

Yields on benchmark gilts reached 1.92pc on January 18, the lowest since Bloomberg started tracking the data in 1989. The securities currently yield 2.27pc, compared with an average of 4.22pc over the past decade.

"A 100-year bond is effectively a perpetual," John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London, said. "From a borrower's standpoint, it's a very attractive product. There's good reason to lock in low funding costs with yields at these levels."

The Treasury has already had informal discussions with bond-market participants about the idea, according to the people, who declined to be identified because the plans are not yet public.

Investors that need to match their liabilities and assets such as life-insurance companies may be buyers, though the National Association of Pension Funds expressed scepticism about the plan, saying funds would rather buy more index-linked debt of between 30 years and 50 years and that it's unclear whether 100-year gilts would provide a big enough return.

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