CHEAP MONEY

Evening Star, Issue 22203, 4 December 1935, Page 8

CHEAP MONEY

LOAN ISSUES IN BRITAIN ■■ 1 LARGE-SGALE OPERATIONS (British Official Wireless.) Ress Association —By Telegraph—Copyright RUGBY, December 2. Two new Government issues have been announced. The first is one. of short-term bonds redeemable on February 1, 1941, or any time after February 1, 1939, at the option of the Treasury after three months’ notice. These bonds 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 2} per cent, funding loan, 1956-61. The issue price is 96f, and the yield, allowing for redemption at the latest date, is £2 13s 10d 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 Post Office savings banks 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 the issue of 2 per cent, bonds, 1935-38, -made 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. 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 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 its present exceptionally low level—say, 12s per cent, per annum.—it- cannot but result in some immediate increase of the cost. The net result of the whole operation, after staking 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 of Treasury bills will in 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 the 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 the nominal rate of 21 per cent. PRESS COMMENT LONDON, December 2. “ A new milestone in British financial progress,” is the ‘ Daily Mail’s ’ description of the conversion. It says: “ Boldness in dealing with the national finances in this comprehensive fashion shows that the Treasury still has a sound grip of the situation. Its cheap money policy is being carried out with skill and foresight.” The ‘ Daily Telegraph ’ notes that the loans were announced in a fateful week when the prospect of further sanctions against Italy cast a faint but perceptible gloom over the financial horizon. The Government, by advertising 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 bo put into the gilt-edged markets, whim interpret the issue_ to mean that in the Government’s opinion there_ is no need to defer a domestic operation owing to the cloudy international outlook^’