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Nangle, Woolnough & Riddell bag boost on War Bond call

Nangle, Woolnough & Riddell bag boost on War Bond call

Toby Nangle, Richard Woolnough and Mike Riddell have all enjoyed a last minute bump to their October performance stats with the announcement that the government is to call in war debt.

The issue is held by Riddell's M&G Gilt & Fixed Interest Income fund, which holds 7.70% of its £702.8 million assets in perpetual UK gilts. It was not clear from holdings data how much of that was in the 4% Consolidated Loan to be called next year, however.

Woolnough also appears to hold the issue in his M&G Strategic Corp Bond and M&G Corp Bond funds, although these were much smaller, relative to overall fund positioning.

The yield on the bond fell from 3.51% to 3.06% overnight according to Reuters data, following the Treasury announcement, having already fallen from almost 4% in the middle of September.

said that the Reuters data appeared to have been corrupted by the switch from perpetuity to an effective four-month maturity however, adding that the issue, which is relatively small at just £218 million, continued to trade at par value, where it has been for some time.

‘The big win here will be for those who own the much larger War Bond,’ he said. ‘The market is pricing in the possibility that will now be called as well.’

The 3.5% War Bond is almost ten times the size of the 4% Consolidated issue, at £1.9 billion. Other significant holders of the 3.5% issue include Fidelity’s Ian Spreadbury and Henderson UK Gilt manager Mitul Patel.  The issue has steadily appreciated from a low of 80p this year to a current 91.65p. 

Nangle, who has been particularly vocal in calling for the redemption of the bond as a win-win for both holders and taxpayers - who would gain from a roll-over into regular gilts yielding at lows unknown since the 19th century- is known to be the second largest holder of the debt across Threadneedle portfolios.

A spokesperson for the company said it was not immediately clear how much was held in aggregate across company portfolios.

In a statement, Nangle said: ‘This is a great example of pragmatic and attentive debt management on the part of the UK government. I hope that this move is the first of many to cut the interest bill and save taxpayers money.’

The Treasury said that the decision was the first repayment of a perpetual Gilt in 67 years. The 4% Consolidated was issued in February 1915 by the then chancellor Winston Churchill, replacing securities which dated as far back as securities issued by the South Sea Company  in 1711.

Writing in the Financial Times earlier this month, Nangle pointed out that re-issuing the debt as a series of long-dated bonds would make a lot of sense for the public purse.

‘The War Loan trades at a price of 92 and a yield of 3.81%,’ he wrote. ‘The 30yr gilt trades at a yield of 3.03%. If the [Debt Management Office] was to exercise its right to call the bond at par today and was to fund this call with the issuance of a new perpetual bond with the same coupon and a non-call period of 30 years, it would lock in a saving of 47 basis points per annum (the 3.5% call yield minus the funding yield of 3.03%) on a £1.93 billion issue.

‘And so the £1.93 billion 3.5% 90-day callable perpetual bond issue could be redeemed and replaced with a £1.63 billion 3.5% 30-year callable perpetual bond delivering a no-brainer £300 million debt reduction to the taxpayer and an associated £9 million per annum saving in interest costs (in perpetuity).’

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Toby Nangle
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