



Today we look at the Consol, an 18th century debt issuance. Indeed, it is one of the earliest known debt issuances in recorded history.

Originally called consolidated annuities, the Consol is one of the earliest forms of government bonds. Primitive compared to the modern day 10 year bond, it had no maturity, and paid a coupon in perpetuity. It requires an act of the British Parliament to redeem them (likely not gonna happen with rates this low).

Originally issued with a coupon rate of 3.5%, the rates have been lowered throughout the 1800’s. In fact, it wasn’t until 1903 under the terms of the National Debt Conversion Act of 1888 that they lowered it to where it stands today at 2.5% (Parliament can redeem the debt at par).

They still trade today, but represent a tiny fraction of the UK’s total debt. Since 1958, the Brits moved to a traditional 10yr bond as their flagship debt instrument. Consol’s currently have a 200 basis point spread from the UK 10yr and trade at around 4.4%, paying a coupon four times a year.


UK 2.5% Consol Yield vs the Great Britain Governmental Debt to 1742
click for ginormous chart
Source: Global Financial Data


Here is a snapshot from the newspaper reporting the financial data on the Consol’s, original source, circa 1838:


Thanks to Ralph Dillon of Global Financial Data for charts.


Ralph Dillon
Global Financial Data, May 20, 2013

Category: Credit, Fixed Income/Interest Rates


6 Responses to “18th Century Debt (UK Consols to 1742)”

  1. Jo says:

    Did you know that UK can’t join the Eurozone for as long as we have perpetuals outstanding?

    What a lucky break!

  2. VennData says:

    Thus spake Thy exchequer, “Hither yon a helicopter be!”

  3. ” It requires an act of the British Parliament to redeem them (likely not gonna happen with rates this low).”

    Isn’t this backwards? At 4.4%, consol yields are substantially higher than 10-year gilts, and it would seem from other yield curves that the 200bp spread is higher than one could justify from the longer duration of consols alone. High-yield debt should be paid off in lieu of lower-yield debt in a prudently-run Exchequer, should it not? The UK could potentially reduce its interest payments by issuing gilts and repaying consols. Or, to match the Americans and Japanese, they could simply print up some fresh “Pounds” and retire the consols altogether. So why haven’t they done so?

  4. Ralph Dillon says:

    Good point. I suppose they could if they want to by sparking up the presses. I thought the same thing. But perhaps for these 2 reasons. First they have no maturity and second, they are currently trading below par. Well below it in fact. Current yield at 4.4% issued at 2.5%. Currently priced at ~60.

  5. Lyle says:

    The nice thing about a consol, is that there is never a crisis of confidence in the existing bonds, they never have to be renewed. So also they shut folks up about the grandchildren having to pay them off, they never need to be paid off. Now with the low interest rates would be an excellent time to try to issue some. Given inflation, what would perpetual bond that paid an inflation linked interest payment, i.e. you buy an instrument that provides roughly a guaranteed real income for ever. The interest payment would rise by the percentage increase in some CPI measure, i.e. if in 5 years this index went up 20% the payment goes up 20% and if in 10 years its up 50% the interest payment goes up 50%…

  6. Ramstone says:

    One of Hugh Hendry’s party tricks was to buy World War I perpetuals. He still holds them. Fortunately, there aren’t enough of them for institutionals to start sniffing around.