Forex Market Commentaries - 100 Year Bonds For UK

Printing Money And Lending It To The Government

Mar 15 • Market Commentaries • 1248 Views • No Comments

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The week after next the UK’s Finance Minister George Osborne reveals plans for bonds of no less than a hundred years, as the administration looks to take advantage of historically-low rates.

Osborne will use his yearly budget address to launch a consultation on century-long bonds and could also propose gilts, that the capital is rarely paid back but interest is due forever a Treasury source related.

The unity govt. wants to take advantage of current ultra-low English bond rates to borrow money inexpensively from institutional and pension funds as well as other larger investors and repay it over a long-lasting period.

It’s a novel approach; both ideas could benefit the treasury and supply much-needed money at a particularly low rate.

“This is about locking in for the future the discernible advantages of the safe harbor standing we have today,” asserted a well-known UK economic guru.

The prize is lower debt and debt payments for taxpayers for years to come. It’s a chance for our great grandchildren to pay a smaller amount than they otherwise might have predicted to thanks to this government’s financial credibility.

English government bonds, or gilts, are in demand as financiers are assured by the Conservative-Liberal government’s attempts to cut its debt and avoid the crisis that has rocked the eurozone.

Fitch rating agency just endorsed the UK’s AAA rating, one of the few left in Europe. Additionally, the BoE is purchasing large amounts of them with newly-created money that it hopes can in turn be used to aide recovery.

Rates on Brit gilts now stand at record-lows of two percent and stand even below nations with lower budget ratios than Britain.

 

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The UK government is making certain low interest rates on UK debt for the long run and also extending the maturity of UK debt.

The longer your debt maturity profile the more stable your debt load is believed to be.

Since one of the chancellor’s main roles is to encourage rating agencies and markets the UK’s debt load are controllable, this should be considered a smart move by Osborne, while it passes the responsibility to repay the debt to our future generations.

The requirement for Gilts was being driven by the Bank of England’s asset purchase program, known as quantitative easing (QE), and which is targeted at boosting economic expansion in The United Kingdom.

The UK Central Bank is the largest customer of gilts and with no sign of the BoE shrinking its balance sheet soon ; there’s a sound logic to Osborne’s plan.

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