Gilt-edged Securities - Undated Gilts

Undated Gilts

There exist eight undated gilts, which make up a very small proportion of the UK government's debt. They have no fixed maturity date. These gilts are very old: some, such as Consols, date from the 18th century. The largest, War Loan, was issued in the early 20th century. The redemption of these bonds is at the discretion of the UK government, but because of their age, they all have low coupons, and for a long time there has therefore been little incentive for the government to redeem them. However in early 2009, and again in late 2011, the yield on these gilts, and in some cases also the coupon, was higher than the redemption yield on long-dated redeemable gilts, which implied that the market was pricing in the chance that the government might redeem these gilts at some point. The question of the redemption of War Loan has now been publicly raised. Because the outstanding amounts are relatively very small, there is a very limited market in most of these gilts. However in May 2012 the Debt Management Office issued a consultation document which raised the possibility of issuing new undated gilts.