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UK to repay part of perpetual war loans

The UK government has announced it will repay a small portion of government debt that can trace its lineage back to the 19th century.

For the first time in nearly 70 years the government is redeeming gilts with no fixed maturity date as it seeks to take advantage of low borrowing costs currently available on global capital markets.

The 4 per cent consolidated bond in question was issued in 1927 in part to refinance 1917 war bonds sold under the slogan: "If you cannot fight, invest all you can in 5% bonds."

These bonds can be tracked to debt first issued in the mid-19th century to finance the Napoleonic and Crimean Wars and later consolidated.

The government says it will redeem the remaining £218m of the 4% Consol, leaving about £2bn of perpetual debt remaining. The government is now looking into the practicalities of repaying the full amount.

Investors in the government's stock of perpetual debt have been arguing that this is a good time for the country to redeem bonds issued in the last century, as the UK's borrowing costs on capital markets have fallen, meaning the country can refinance at a cheaper rate.

"Today's decision represents great value for money for the taxpayer," said chancellor George Osborne.

The bonds that the government will redeem come with no fixed maturity date but give the government the option to repay with 90 days' notice. This option has put a ceiling on the price that the bonds trade at and for investors, redemption offers a capital gain.

"This is a great example of pragmatic and attentive debt management on the part of the UK government," said Toby Nangle, head of multi-asset allocation at Threadneedle Asset Management. "I hope that this move is the first of many to cut the interest bill and save taxpayers money."

Michael Riddell at M&G Investments said the announcement made it more likely that the government would redeem the far larger £2bn stock of war loan issued in 1917.

"Some investors had doubted whether the 3.5 per cent coupon war loan would ever be bought back by the Treasury but this is now clearly on the table," he said.

The government will redeem the 4 per cent consolidated bonds on February 1 2015 - the first such payment in 67 years. The bond is one of eight outstanding gilts without a redemption date and is held by 11,200 investors, most of whom own less than £10,000.

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