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Okay, so the last post was a bit of a whinge over this website’s lack of quantifiable revenue over the near term horizon due to my advertising partner’s sudden about-face decision regarding our partnership. Fine, sudden tail-event encountered – moving on.

Now, as the last paragraph of the previous post succinctly asked: what is one’s word worth these days?

Not sure if there is a firm answer to this but, as in finance, your word is your bond. This logically leads to the following point of argument.

Minimal Coupons and Long Duration

So this website is now going down a long tortuous route of a minimal coupon bond with extreme duration. The real question therefore becomes: will redemption ever come?

Maturity in Perpetuity

You might now see where this may be leading us. There is a form of securities out there, rarely seen these days but still around, their ownership is varied and their usage many: indeed, I am referring to those known as the perpetuals.

The issue is topical at the moment as, with current global debt issues continuing to peek their noses beyond the curtain, many markets are wondering: where to from here? Maybe from here is a never-ending story. One that could range on into perpetuity.

The Rise of the Sovereign CONSOLS?

Investopedia explains Perpetuity
This is not as abstract a concept as you may think; the British issued bonds, called consols, which are a great example of a perpetuity. By purchasing a consol from the British government, the bondholder is entitled to receive annual interest payments forever. Although it may seem a bit illogical, an infinite series of cash flows can have a finite present value.
Source: Investopedia, Perpetuity

And so the question arises, should debt be considered finite and limited in nature or is redemption an unnecessary substitute for the realities of our market.

As most fixed income investors may attest, there is certainly a demand for ongoing future revenue streams and, certainly, this would solve the core issue of how to minimise a cumbersome debt-burden.

This will perhaps best be left for another future post but, who knows, perhaps the reality of perpetual maturity is much sooner than the term may first imply.

• Background Links:
• Investopedia: Perpetual Bond
• FT Lexicon: Undated Gilts
• UK Consolidated Annuities – Historical Record
• Bloomberg: CME Group Begins Trading ‘Ultra’ U.S. Treasury Bond (Update1)
• UK Debt Management Office: See Section on Undated Gilts
• Reuters Felix Salmon: What about perpetual TIPS?
• Recent Private Sector Perpetuals Issuance
• Reuters 18/03/11: India’s Tata Steel says raises $332 mln in perpetual bonds
• 20/01/2011 – SCOR successfully places CHF 400 million perpetual subordinated notes
• SCOR Reinsurance Maturing and Callable Perpetual Bond Listings