The Fiscal Crisis - Borrow Long - If You Can!

This is a related post to my recent blog on the scale of government borrowing and debt. The Debt Management Office is responsible for finding buyers for the new debt issued by the UK government and they have their hands full this year with the challenge of selling over £220bn worth of new securities. Edmund Conway has a fascinating blog piece here about the term structure of this debt and what is means for the cost of making the interest payments. This week the UK government issued new bonds that will not be due for repayment until 2060 when most of us will be long gone! A fifty year bond is perhaps the longest bond (gilt) to have been issued for many years. And it turns out that the average date to maturity for UK public sector debt is significantly higher than for most advanced economies.

“The UK’s debt market is peculiar. In the US, average length of the existing Treasury bonds was, at recent count, 4.7 years and falling. Because this is such a short maturity, it means the debt has to be rolled over far more often, and at every point the government runs the risk of setting in stone any changes in interest rates. In France, the average maturity is 7.1 years, in Italy 6.9 years, in Germany 6.35 and in Japan 5.7 years. In Britain, the weighted average maturity of government bonds is a whopping 14.2 years. Admittedly, as the IMF points out this is slightly lower in the wake of the crisis, but it is still significantly longer than any other major economy.”

More here