THE H.B. TRIBUNE WEDNESDAY, NOVEMBER 2, 1932 STATE BORROWING.

Hawke's Bay Tribune, Volume XXII, Issue 273, 2 November 1932, Page 6

THE H.B. TRIBUNE WEDNESDAY, NOVEMBER 2, 1932 STATE BORROWING.

As things have turned out, it would seem to have been rather unfortunate that both custom and urgent requirement dictated the floating of this year’s annual London loan as early as April last. That £5 million loan waa issued at £9B 10/- and bore face interest at 5 per cent, thus yielding the subscribers, allowing for redemption bonus, some £s' 2/2 per cent, all round. There can be very little doubt that very much better terms could be got at the present moment. For evidence of this we have only to have regard to the £8 million loan which the Union of South Africa has just put out. This was offered at £96 10/- bearing face interest at 3j per cent. Here, the investment yield, again allowing for redemption bonus, works out at about £3 15/- per cent. This, taken in conjunction with the equally advantageous conversion effected by the Australian Government a few weeks earlier, gives some idea of the marked easing in the terms even for “colonial” issues that has taken place on the London market following upon Mr. Neville Chamberlain’s big wardebt conversion. However, so far as the London financial reservoir is concerned, our only hope may be that the same easy terms will be on tap when next we have to draw upon it.

Just now our Government seems to rely upon the local market to supply its current wants, and this suggests some comparison of the terms it in offering with those that are obtaining elsewhere. From Australia we first of all heard of proposals for the issue of an internal loan of £2O million by way of “funding” floating debt and providing money for public works. This, however, has been very severely trimmed down and the final decision has been for an £8 million issue, half of which will be used for public works and half devoted to taking up Treasury bills. This loan is to be submitted at par, is to have a currency of 10 years, and is to bear interest at 3| per cent. Then, from Canada we hear of an internal 80 million dollar (about £l6 million at par of exchange) loan, the proposed terms of which will give subscribers a net return of somewhere about 4 per cent. So far as concerns our own Government’s calls upon the internal market the only indication we have as yet had is with respect to the debentures and inscribed stock that have been on continuous offer for some years now at rates of interest that have been varied from time to time.

The present intimation does not propose to make any change in the 5 per cent, rate already current for these stock. All that is in view is to prescribe a new date for redemption, this being postponed from 1937 to 1940. The securities issued on this footing, like those with the earlier due date issued since 10th May last, will not be subject to the 10 per cent, stamp duty imposed by the National Expenditure Act, so that there is no symptom suggested of

an easing in local interest rates. It is, of course, impossible to guess to what extent those with money to invest will take advantage of the terms thus offered. In his Budget presented early last month the acting Finance Minister told us that during last financial year something like £700,000 had been made available in this way. It may, however, be readily imagined that, with money rates falling so markedly elsewhere, the demand for these securities is likely to increase. The question, of course, is as to whether the Government could not fill .its requirements on some easier terms and, at the same time, set a standard for lower rates on private borrowing as well. The patent suggestion may be that its needs of the moment are such that it must by liberal terms make sure of a liberal response.. Otherwise, on the face of things, it would not seem very good business to saddle the country for the next eight years with any very substantial addition to its public debt bearing so high a rate of interest.