Bond book competition winners: the UK Exchequer 12% 2017-13 is the highest coupon gilt still outstanding

Still outstanding, but probably not for long.  Although this gilt has a maturity date on 12th December 2017, there is a call option for the government at par (100) on 12th December this year (hence the 2017-13 date), and given the current price of the bond is well above par (108-ish) it will get redeemed, unless they forget.  This is what’s known as a “rump” stock.  Although it was once a £1 billion issue, most has been bought back over the years by the Bank of England or Debt Management Office, so there’s only £14.5 million left in the wild.

This gilt issue was announced in June 1978, when Rivers of Babylon by Boney M was number one in the UK music charts, and, most importantly Nottingham Forest FC had just won the football league.  Forest would go on to win the European Cup two years in a row.  And it was a proper competition in those days, not a stupid league like today.  Shilton, Anderson, Burns, Lloyd, Clark, McGovern, Needham, O’Neill, Bowyer, Robertson, Birtles.  And Clough and Taylor.  You can read a bit more about this great team here.

Inflation in 1978 was 8.4%, so 12% was a nice real yield, although inflation had averaged 15.8% over the past 5 years, so it wasn’t a no-brainer.  In fact your real return from gilts in 1978 was -20%, and -22.6% in 1979.  Ouch.  It wasn’t until 1982 that there was a positive real return, a lovely 29.2%.  The interesting feature about gilts at the time was that they were issued partly paid, with 15% of the purchase price payable on the 15th June, 30% on 27th June and the rest on 14th July.  We’re not really sure what the point of this was?  To allow gilt investors to gear?  To manage money market flows?  Any veterans care to let us know?

Anyway the 20 tweeters who came up with the correct answer were:

@amirriz 1

Please DM us with your address so we can send you a copy of Mark Glowrey’s The Sterling Bonds and Fixed Income Handbook.  Thanks for all of your entries.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Jim Leaviss

Job Title: CIO Public Fixed Income

Specialist Subjects: Macro economics and fixed interest asset allocation

Likes: Cycling, factory records, dim sum

Heroes: Brian Clough, Morrissey, Neil Armstrong

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