What is an Undated Issue?
Let me explain what an undated issue is: it's a government bond without a maturity date, meaning it pays interest forever.
Key Takeaways
You should know that an undated issue acts like a government bond with no end date, delivering interest payments indefinitely. From your perspective as a bond holder, it works much like a stock that pays dividends. Banks see these as Tier 1 capital, which helps them meet their reserve requirements.
Understanding Undated Issue
Technically, the term for an undated issue means interest payments go on forever, as agreed upon. As a holder, you'll get recurring interest much like dividends from a stock, over a very long time. That's why they're often called perpetual bonds or 'perps'.
The government could redeem it if they want, but they usually don't, especially since most have low coupons with little incentive to do so. These are treated as equity due to their perpetual nature, not debt. One key difference from other equity is no voting rights, so you have no say in the issuer's decisions.
For banks, these count as Tier 1 capital, including equity and reserves, making them useful for reserve requirements.
You can still find undated issues today, but they're not as sought after as municipal or Treasury bonds.
Undated Issues in History
These have been around for centuries. Many historians point to the British government as the originators, with the first recorded in the 18th century.
The most famous are the UK's undated bonds or gilts, known as gilt-edged securities. Until recently, there were eight, some from the 19th century. The biggest was the War Loan, at £1.9 billion with a 3.5% coupon from the early 20th century. But now, they're history in the UK—the last were redeemed in July 2015 by the chancellor.
