BRITISH WAR LOAN.

New Zealand Herald, Volume LXVIII, Issue 20842, 8 April 1931, Page 8

BRITISH WAR LOAN.

Among the factors contributing to an improvement in the tone of the London Stock Exchange, reported in a cable message published yesterday, was said to be the revival of hopes that before the end of the year the Chancellor of the Exchequer will find it possible to carry out a conversion of the 5 per cent, war loan. The prospects of this formidable task being undertaken were eagerly canvassed some six months ago, and hopes of its achievement are certain to' recur whenever even a slight illumination of the outlook appears to promise a favourable opportunity. The outstanding amount of the loan is How £2,096,000,000, or more than one-fourth of the total dead-weight debt, and its huge nominal amount has for years prevented the Government's credit moving very far from a 5 per cent, level. Since 1929 the Government has had the right, at any time on three months' notice, to redeem the stock, and after some controversy there appears to be agreement that any proposal of repayment must apply to the whole loan. That does not exclude partial conversion by stockholders' acceptance of invitations to exchange into other stocks, but in present circumstances no material progress can be made in that direction. The ultimate objective is to effect a substantial reduction in the interest charge, and circumstances will not be regarded as opportune until at least a 4 per cent, basis is attainable. The "risk" of conversion is one of the reasons why quotations for the stock are persistently relatively lower than those for long-dated stocks, giving a return as much as A per cent, higher. If conversion prospects improve, there is a tendency for war loan to fall

while other stocks rise; as they diminish, holders of long-dated stocks are disposed to sell them, weakening the quotations, and to buy war loan for the sake of the higher yield. The latter tendency has been evident during recent weeks, the latest quotations for war loan being higher and those for other funds materially lower than in the middle of February. This depressing effect upon gilt-edged stocks is likely to persist until there is either so positive an improvement in the Government's credit or so definite a cheapening of money generally that the prospects of conversion are brought appreciably nearer. As to the former, the evidence is only negative, for the declared deficit is very large even if it is smaller than was feared, the drain of unemployment relief is continuing and the prospects of additional taxation cannot be ignored. There is certainly evidence of a gradual awakening to the effect of excessive taxation upon the sources of capital for the nourishment of industry and the provision of employment, but popular education cannot immediately repair the appalling depletion of British capital, and it is to be feared that Budgetary influences will again work against the cheapening of money that should follow trade depression. Hence the forecapt of war loan conversion this year may be less a straw in the wind of public opinion than a reflection of invincible optimism in the London Stock Exchange.