Goodbye to War Loan: 1917 to 2015.

Today, the War Loan issued in 1917 to help finance Britain in World War 1 is finally redeemed. We’ve written about it repeatedly over the years as it has always fascinated us. Was its coupon cut in 1932 a form of default from the UK government? Does George Osborne’s claim that it is being redeemed this year as a result of a tight grip on the public finances ring true?

To commemorate this most interesting of gilts we have made a film about War Loan – one that tells the economic history of the UK through wars, default, the re-joining and leaving of the gold standard, the inflationary 1970s, the loss of the UK’s AAA credit rating, and finally the deflation that has followed the Great Financial Crisis.

 

War loan slides

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.

Categorised as: Countries War loan

Discuss Article

  1. Brian J Nicol says:

    I will always remember War Loan for the day when, as a young fixed income investment manager I watched the price on War Loan getting to within an eighth of a point of equalling the yield. 40 years ago, but I seem to remember a price of 19-1/2 and a yield of 19.375!

    Posted on: 09/03/15 | 11:12 am
  2. John Duckett says:

    My recollection is that cross-over was 18.708, and the low was 18 3/4. It was possible to buy £100 nominal of all the undateds for less than £100, excluding the two Annuties!

    Posted on: 09/03/15 | 12:25 pm
  3. dearieme says:

    (1) I don’t see how calling a callable bond can be classified as a “default”. The propaganda campaign of the time is not to my taste, but that’s no evidence of default.

    (2) The US, on the contrary, undoubtedly did default on its treasury Bonds under FDR, when it ratted on its contractual commitment to let bondholders take their principal in gold rather than USD. Indeed at the time it was commonly referred to as “the American default”. Astonishingly, the Supreme Court let the little twister get off with it. Fat lot of use a written constitution is if the Powers That Be ignore it whenever they deem the matter important enough. Jim Grant’s Interest Rate Observer had a good article on it back in (roughly) 2006. It would repay study.

    Posted on: 09/03/15 | 3:15 pm
  4. Joe Pimbley says:

    Excellent video! I salute the author and his colleagues for showing the passion in their profession to dive into the history (and debate it!). Well done! As a comment, I do consider that the US did default on its debt in 1933-4 when the gov’t repudiated the Gold Clause (repayment of debt in gold). The US devalued the dollar from $20.67 (or so) to $35 per ounce of gold. Thus, creditors of the US did not receive full repayment. Further, all countries that held US dollars at the time as their “gold holdings” under the prevailing Gold Exchange Standard took tremendous losses. The final termination of the US gold standard in the 1970’s is arguably another default.

    Posted on: 10/03/15 | 1:00 am
    • dearieme says:

      “The final termination of the US gold standard in the 1970’s is arguably another default.” I don’t think so; I think we’re discussing default for the case of government-issued tradeable debt – US Treasuries, UK Gilts, and so on. If we don’t confine it to that we’ll end up arguing that every government that has allowed inflation has defaulted.

      Posted on: 10/03/15 | 11:20 pm
  5. Ian Jackson says:

    Can I compliment you on the excellent, very informative film/video (War Loan 1917-2015) that is also very well put together. I am not an investment Professional (strap line at top of this page!!), and only came across the film by accident after a general Google search on 3 1/2% War Loan while researching family history.

    I’m sure the film would be well received by the general public, and I hope you never remove it from the website and that it continues to score highly in Google searches. It deserves to be more widely known (or perhaps it is, and I ignorant of such matters). I have copied the link to other family mermbers.

    Thanks very much; a real and unexpected treat.

    Posted on: 28/01/16 | 11:40 am

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