Friday, October 31, 2014

Breaking News: United Kingdom Declares Perpetual War on Savers!

Halloween, 2014
Osborne Starts Paying Off World War I Debt 100 Years On

About 218 million pounds ($349 million) of undated debt paying 4 percent a year will be redeemed at par on Feb. 1, Osborne said today.

The United Kingdom seems to think that interest rates will stay below 4% for a considerable time. Using Fed Speak, what would a "considerable time" be? Well, the math says something on the order of infinity. These were "perpetual" bonds after all.

But hey, savers need to think long-term. Don't forget to brace for that rising interest rate environment on long bonds once a nearly infinite number of years have passed!

It seems like only yesterday that we were discussing this perpetual bond in the comments of this blog. Oh, wait. It was yesterday.

At the moment the perpetual Gilt, "War Loan", pays 3.81% p.a. It's "perpetual" in the sense that unless HMG uses its right to "call" it, it runs for ever, or until the end of the UK, whichever comes sooner. - dearieme, October 30, 2014

Excellent use of quotes around the word perpetual! Nicely played, dearieme!

WWI is the "gilt" that keeps on giving! - Stagflationary Mark (me), October 30, 2014

I stand corrected. Perpetual war broke out! Hahaha! Sigh.

I really must apologize to the Japanese savers. They must know I'm joking. Perpetual war clearly broke out in the early 1990s.

And let's not forget about the USA!

August 15, 2013
The Long-Term Death of Real Yields

Click to enlarge.

1. The world war on savers will continue until morale improves.
2. Morale is not likely to ever improve.

Perhaps that's what makes me a permabear.


Stagflationary Mark said...

Halloween, 2014
The Market Ticker: But I Thought It Worked?

Remember, folks, QE works.

It works so well that it has be repeated. Time and time again. Every time. All the time.

Priceless quote! Hahaha!

Hint: If you're a Japanese citizen I hope you enjoy grabbing your ankles.

Oh my! Another one! Sigh.

Mr Slippery said...

Does QE work? It may not work as intended, but id directly affects prices of things purchased with the fresh money, and indirectly affects the prices of many other things.

In many cases, central banks get to set the prices they want for whatever they want. They seem to have no restraint on they power. They buy treasury bonds, mortgages, stocks (BOJ, Israel), corporate bonds (BOE), and who knows what else.

I don't know if they will retain this power forever, but they certainly have it now.

Mr Slippery said...

Wow, lots of typos and weak proof reading on the last comment. That's probably why I don't work for a central bank.

Stagflationary Mark said...

Mr Slippery,

It all just seems like a confidence game to me.

I truly believe that if the Fed had done nothing, interest rates would be even lower. We'd be smack dab in a Great Depression with interest rates to match.

I therefore find it hard to believe that the Fed actually has lowered long-term interest rates. It would not surprise me in the slightest if for every treasury bond dollar they spent, they enticed considerably more than one dollar to buy something else. Isn't that the real intent?

That's probably why I don't work for a central bank.

When it comes to central banks, I guess it's better to look good than be good, if you know what I mean. ;)

dearieme said...

Aw bugger, missed the boat! I'd thought of buying some since it seemed obvious that the Treasury ought to "call" them.

Stagflationary Mark said...


Could you have bought them at par? It seems to me like people would have bid them up above that.

If I'm right, then you should be very happy that you didn't buy! Right?

Stagflationary Mark said...

Now I see why you would have wanted it!

UK bonds that financed first world war to be redeemed 100 years later

For long periods, high inflation depressed the War Loan’s market value meaning the government would have lost money by buying the bonds back. But, with the bond trading at a few pounds below its callable value, Nangle has argued it makes sense for the government to call it in. The government could then issue a new bond paying less than 3.5% saving money on interest payments while, he admits, allowing his clients to make money.

“It would absolutely be in the short-term interests of my clients to have this called because it would be a higher price than the price in the market,” Nangle told the Guardian last week. But he said his clients’ profit would be a byproduct of a sensible deal for the government. “It wouldn’t be rewarding the City or anything like that,” he said.


dearieme said...

“It wouldn’t be rewarding the City or anything like that”: 'course not; Heavens forfend!

Stagflationary Mark said...


I really must warn you on the use of excessive sarcasm on this blog.

I only allow it in the posts and the comments!

Okay, okay. It isn't so much a warning as it is an observation. Hahaha! :)