592 TRANSACTIONS OF SECTION F. 



Consolidated Three Per Cents. 



The quick rise in Government credit after Waterloo explains the success of 

 the great conversion schemes oi^ 1822, 1824, and 1830, all of which involved a 

 material reduction in the rate of interest. One inference to be drawn from the 

 above table is that all loans issued during the present War should bear early 

 dates of redemption, so that the Government may convert them into loans bear- 

 ing a lower rate of interest if the conditions of the Money Market ten or fifteen 

 years hence permit such an operation. Pitt floated some of his War Loans at an 

 enormous discount, yet they were being redeemed, before the Boer War sent 

 down the price of Consols, at a considerable premium. 



Let us see how the rise in the rate of interest is demonstrated by the terms 

 on which the two W^ar Loans have been issued. The first loan was 350,000,000/. 

 of Sg per cents, at 951. : the loan being redeemable in thirteen years (or in ten 

 years at the option of the Government). The yield was thus 3^ per cent. jjIus 

 a bonus of 31. per cent, on redemption at par in 1928, or three years earlier if 

 the Government should so choose. At the time when this first loan appeared, 

 therefore, the credit of the British Government stood at something between 

 3| and 4 per cent. 



The second War Loan, which appeared at the end of June 1915, was made on 

 a very different basis. This time it was a 4^ per cent, loan, at par, and 

 redeemable in 1945, or at any date after December 1, 1925, at the option of the 

 Government. The terms, moreover, were really more favourable to the investor 

 than appears at first sight, for (1) a fidl half-year's interest is payable on Decem- 

 ber 1, although the instalments will not be completed until October 26, and 

 (2) it is provided that for every lOOZ. held by a subscriber to the new War Loan he 

 may obtain another 100/. in exchange for the same amount in the old' War Loan 

 on payment of the difference of 5/. in the respective prices of issue. For 100?. 

 held in the new War Loan, the subscriber may obtain another 50/. in exchange 

 for 75/. Consols which bear interest at 2^ per cent., or another 50/. in exchange 

 for 67/. of 21. 15s. per cent, annuities, or another 50/. in exchange for 78/. of 

 21. 10.«. per cent, annuities. 



It is a condition of all these exchanges that new capital shall be raised to 

 the extent of 105/. for every 100/. old War Loan, 100/. for every 75/. Consols, 

 67/. annuities at 2| per cent., or 78/. annuities at 2^. The market for these 

 various securities has been affected by the regulation of the Stock Exchange 

 approved by the Government fixing a minimum price for them, which has 

 greatly restricted dealing in them. That minimum price is subject to 

 variation, and has already been diminished in consequence of the issue of the 

 prospectus of the new War Loan. The market price would probably be much 

 lower if the market were free. As persons desirous of subscribing for the new 

 W^ar Loan either with or without the purpose of exercising the option of 

 exchange will in many cases have to realise other investments, the Stock 

 Markets generally might be expected to fall. Much will depend on the extent 

 to which Consols and the annuities are offered for conversion. It is to be borne 

 in mind that Consols are only an annuity, the capital value of which depends 

 on the price current in the Stock Market. It has been necessary whenever the 

 Government has desired to lower the rate of interest upon Consols to give the 

 holders an option of being paid out at par, that is, at the nominal capital value 

 corresponding to the annuity at the current rate of interest. Upon that. 

 Consols now stand to produce interest at 21. 10s. on a nominal 100/. By the 

 proposals for conversion of 75/. Consols into 50/. War Loan that rate of interest 

 is raised to 3/. percent., but the nominal capital which the investment represents 

 is reduced. 



