SHORT-TERM LOANS CONVERSION ISSUES

Evening Post, Volume CXX, Issue 135, 4 December 1935, Page 11

SHORT-TERM LOANS

CONVERSION ISSUES

BRITISH GOVERNMENT'S

ACTION

LOW INTEREST RATES

(British Oftlcial Wireless.) RUGBY, December 2,

The new Government issues are announced. The first is a short-term bond issue, redeemable on February 1, 1941, or at any time after February 1, 1939, at the option of the Treasury, after three months' notice. This bond will bear interest at the rate of 1 per cent., and 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 chis issue, which will, of course, appeal chiefly to the money market, is £100,000,000.

The second issue is a medium longterm loan of £200,000,000 in the form of a 24 per cent, funding loan, 1956-61. The issue price is £96 10s 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 tonight the Treasury gives notice that in exercise of its option under the prospectus it will repay at par on March 2 next the whole of the £150,000,000 of the issue of 2 per cent, bonds, 1935-38, made in October, 1932.

The present cheapness of money and high credit enjoyed by the Government thus enables the Treasury to redeem the whole" of this issue, costing them no more than 2 per cent, in interest, two years before the prospectus obliges them to do so. PURPOSE OF LOAN. The instalment dates of the new loan indicate that the money will be applied as to £150,000,000 to redeem the above-mentioned 2 per' cent, bonds, and as to £44,000,000 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 in cash available for reduction of tha floating debt, which has been increased during the last year by this redemption of April 15 last of £44,000,000 of the same issue of 3 per cent, bonds.

The funding of floating debts 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 present at an 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 the interest of £54,000,000 on Treasury bills will, in effect havj 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 the nominal rate of 1 per cent, in any form except Treasury bills and to borrow by means ot a public issue for as long as 25 years at a nominal rate of 2} per cent. Government securities opened stron? today following the news of the loans!