Britain says will pay off World War One-era debt in full next March
By Andy Bruce
LONDON (Reuters) - Britain will pay off all of its debt used to fund World War One next March, when it redeems a government bond first issued more than 80 years ago to help pay for the conflict.
The finance ministry said on Wednesday that it would redeem the 1.9 billion pound, 3.5 percent War Loan -- a perpetual bond which means it has no fixed maturity date -- on March 9 next year.
Issued in 1932, the War Loan was used to refinance debt accumulated during World War One, which ended in 1918.
Some market experts said they would miss the bond as a rare historical curiosity in modern finance.
"For those of us who've been looking at the gilt market for a long time, a little bit of magic has fallen out of the market," said Barclays fixed income strategist Moyeen Islam.
Speculation about the future of Britain's long-standing perpetual bonds has grown because government borrowing costs are at historically low levels, making newly issued debt cheaper to maintain.
On Monday, the yield for the 30-year British government bond hit a new record low of 2.639 percent. By contrast, the War Loan yielded just over 3.7 percent on Tuesday.
Because low yields prompted speculation the War Loan could be redeemed at any time with three months' notice, it meant investors could no longer be sure if they were holding a long duration security, or effectively a three-month Treasury bill, Islam said.
"The (War Loan redemption) makes market management in a low-yield environment, particularly for long-dated gilts, a lot easier for the street."
The redemption of the War Loan would be the start of a strategy to pay off its remaining six perpetual gilts, the finance ministry said.
While amounting to just a few hundred million pounds, some of these gilts were first issued in the 19th century.
In October, the government announced it would redeem 218 million pounds of the 4.0 percent Consolidated Loan, issued in 1927 by then-finance minister Winston Churchill.
Islam at Barclays said the redemption of the War Loan shouldn't have any impact on planned government bond issuance, but might result in a minor adjustment to planned Treasury bill issuance.
(Editing by Susan Fenton)
