UK Chancellor George Osborne proposes 100-year bonds. Essentially his message is "I Will Gladly Pay You 100 Years From Now, For a Hamburger Today". Whether it's Tuesday of next week or Tuesday a hundred years from now, the safe bet is the debt will never be repaid.
The Telegraph reports Britain to offer 100-year gilts
Britain's finance minister George Osborne will next week unveil plans for bonds of at least 100 years, as the government seeks to capitalise on historically-low interest rates, sources said Wednesday.Chancellor of the Exchequer Osborne will use his annual budget statement to launch a consultation on super-long bonds and could also unveil perpetual gilts, on which the capital is never repaid but interest is charged forever, a Treasury source told AFP."The chancellor is expected to announce this at budget" on March 21, the source told AFP.
Yesterday, bonds fell sharply due to stronger-than-expected housing price and consumer confidence reports. That reflects the belief that the economy is mending, and as a result, the Fed will deliver on its promise to dial back and then end QE. Ten year Treasury yields rose to the 2.10%-2.11% level. Various commentators claim that rates will zoom higher either right over that point or at 2.25%. Russ Certo of Brean Capital claim’s there’s a “technical vacuum” at 2.11% that will lead 10 year rates to gap up to 2.25%.
George Osborne, the Chancellor, has announced that the UK will be looking to issue 100 year gilts or government bonds. The stated reason is that this is to take advantage of currently low borrowing costs. But this doesn?t actually make sense. But the total cost of a perpetual should be the same as a five ...
Does it make sense for the government to sell off the Tote?The first question is: how much could it get for it? Let’s take Ladbrokes as the obvious comparator. It has a market capitalization of £868m, having made pre-tax profits of £257m in the last financial year. This gives a multiple of 3.4. Yes, this is low - which shows how (some) prices are still depressed right now.
Stock prices and bond yields have historically had a love-hate relationship that would make the romantic ups and downs of any soap opera seem mild by comparison. But, currently, the relationship between them remains tight and far from crossing the line that would lead to a breakup.