NEW CONVERSION IN BRITAIN

Press, Volume LXXI, Issue 21647, 4 December 1935, Page 11

NEW CONVERSION IN BRITAIN

, TWO BIQ ISSUES INTEREST STABILISED AT LOW RATE GOVERNMENT COMMENDED FOR ACTION (BRITISH OFTICIAX. WIBELESS.) (Received December 3, 7.5 p.m.) RUGBY, December 2. Two new Government issues are announced. The first is of a shortterm bond redeemable ori February 1, 1941, or any time after February 1, 1939, at the option of the Treasury after three months' notice. This bond will bear interest at 1 per cent., and will be offered for subscription at 98, showing an interest yield, with redemption at the latest date, of £1 8s 5d per cent.

The total amount of this issue, which will of course appeal chiefly to the money market, is £100,000,000. The second issue is a medium long term loan of £200,000,000 in the form of a 21 per cent, funding loan, 1956-61. The issue price is 96»i and the yield, allowing for redemption at the latest date, is £2 13s lOd per cent. For the latter loan there will be a separate issue on the Post Office register available for small investors who apply through such banks as the Post Office Savings Bank and trustee savings banks. In a special issue of the London Gazette to-night the Treasury gives notice that in the exercise of its option under the prospectus it will repay at par on March 2 next the whole of the £150,000,000 of 2 per cent, bonds, 1935-38, issued in October, 1932. The present cheapness of money and the high credit enjoyed by the Government thus enable the Treasury to redeem the whole of this issue costing it no more than 2 per cent, in interest, two years before the prospectus obliges it to do so.

Uses of Money

The instalment dates of the new loan indicate that £150,000,000 of the money will be applied to redeem the above-mentioned 2 per cent, bonds, and £44,000,000 of it to redeem the outstanding amount of the issue dated April 29, 1932, of 3 per cent. Treasury bonds, which will be repaid on April 15, 1936. There will remain £98,000.000 cash available for reduction of the floating debt, which has been increased during the last year by the redemption on April 15 last of £44,000,000 of the same issue of 3 per cent, bonds.

The funding of the floating debt in a time of cheap money is generally regarded as an act of prudence, but with the rate of interest on Treasury bills standing at the present exceptionally low level, say 12s per cent, per annum, it cannot but result in some immediate increase of cost. The net result of the whole operation, after making allowance for this, is to leave the current cost of interest on the National debt approximately unchanged, but with the important advantage that interest on £54,000,000 of Treasury bills will m effect have been stabilised for the next 25 years at 12s per cent. It is interesting to note that this will be the first time in British financial history that the Treasury has been able to borrow at a nominal rate of 1 per cent, in any form except Treasury bills, and to borrow by means of a public issue for as long as 25 years at a nominal rate of 2£ per cent.

"Skill and Foresight"

"A new milestone in British financial progress," is the description of the conversion by the "Daily Mail." It says the boldness of the dealing with national finances in this comprehensive fashion shows that the Treasury still has a sound grip on the situation. Its cheap money policy is being carried out with skill and foresight. The "Daily Telegraph" notes that the loans are announced in the fateful week when the prospect of further sanctions against Italy has cast a faint but perceptible gloom over the financial horizon. The Government, by advertising the loans now, has manifested the view that a safer, not a more insecure world, is being moulded by its foreign policy. "The Times" says fresh life will be put into the gilt-edged markets, which interpret the issue to mean that in the opinion of the Government there is no need to defer domestic operations because of the cloudy international outlook.