News that the government is to investigate perpetual gilts, and gilts with a lifespan of more than 50 years has been cautiously welcomed.
Graham Bentley, the head of proposition at Skandia, says the introduction of longer-dated gilts, if adopted by the government, would be positive.
However, he adds there will be questions about how the government bonds will be priced. “What you have got is a coupon payment that goes on for ever with no maturity date,” says Bentley. “It’s going to be interesting to see how they price it.”
Bentley says longer-dated gilts could help increase the supply of “risk-free assets”, adding: “Anything that increases supply is a good thing.” (Article continues below)
The chancellor, George Osborne, said the Debt Management Office promised consultation on the possibility of longer issuance. “The Debt Management Office will consult on the case for issuing gilts with maturities longer than 50 years, and the case for a ’perpetual’ gilt with no fixed redemption date - something Britain last felt able to issue six decades ago,” he said.
In the Budget document, the case for long-dated gilts was backed by “strong demand for gilts of long maturities and against the backdrop of historically low long-term interest rates”.
However, the news was met with mixed views from the asset management community, with some failing to see the appeal of perpetual gilts.