Tuesday 20 July 2010

NS&I Axes Index-Linked Bonds: What Next ?

We've had occasion to remark several times that, for the average punter, NS&I's tax-free, RPI+1% bond (implicitly AAA-rated) was a remarkable offering, almost too good to be true (in our humble opinion); and that, personally, we were up to our gills in them.

Too good indeed: the plug was pulled at midnight.

Yesterday I wrote: "the private demand to replace public spending has not been identified: for the past 10 years most private investment has been in real estate": and perhaps I should have noted just how much £££ has latterly swung in behind these inflation-proof instruments.

So is the government conspiring to push private money into reviving the private sector ? And will it work ? Where will the money now go, that would have been invested in RPI+1 ?

The amounts involved are not insignificant: reportedly, £2 bn in 3 recent months, totally £17 bn in all. The bonds mature variously in 2, 3 & 5 years, so a decent chunk will be maturing each year, and many folk automatically roll them over. If (*sticks finger in air*) we say that perhaps £6 bn might be looking to roll over in a year, plus (4 x 2 = 8) at current run-rate: this might be £14 bn per annum, ballpark, currently looking for the benefits NS&I was offering - in 2008 it was £ 12.5 bn.

The building societies' 3%, taxed, not-secured- above-£50k, doesn't look quite the same (again, IMHO). In a later post we'll take a look at how commodities have fared this year.

So where will it all go ? Will this be the boost to private enterprise the government is pinning all our hopes upon ?



Sackerson said...

"...is the government conspiring to push private money into reviving the private sector?"

Nick, I see it more as flushing the game out in the direction of the guns. It's outrageous - the product was introduced when inflation was at full roar and they didn't suspend it then. I reported this at 8 am yesterday and I've emailed all the clients I can to protest.

Nick Drew said...

flushing the game out in the direction of the guns

scary, Sackers - is Osborne the Victorian villain of Martin Rowson's cartoons ?

Bill Quango MP said...

I was actually in the Post Office yesterday morning to buy them when the clerk said no.

This product wasn't even seriously advertised. Typical NSI dull boring leaflet with no figures or % rates on the front. Even the examples inside were based on 2008 mid credit crunch low inflation figures.
Its a surprise that anyone looked at it at all.

Weekend Yachtsman said...

Damn! I missed the boat on that one.

I assume it means the government expects inflation to rise sharply, and they're determined not to have to compensate anyone for this; no surprises there.

If fixed-interest mortgages start to vanish from the market, that will mean the banks expect the same.

Take to the hills.

Jonathan said...

Should we free marketers even be supporting NS&I?

Sackerson said...

Nick - I don't usually read the Gnadriau. But I fear that cautious investors will be tempted into the market just in time for the experts to skin them.

Sackerson said...

Jinathan - yes. If the government interferes with the money supply iteslf and permits it to be corrupted by banks etc, then it must accept the concomitant obligation to protect those who didn't ask to be pushed into the crooked game.

Sackerson said...

Sorry Jonathan, typo.

Demetrius said...

Where will all the money go? The only safe investment is the Euromillions lottery.

Anonymous said...

That inflation was expected was signalled by the BoE pension trustees going heavily into index linked gilts. Looks like the Condems are going for soft default strategy and aren't too concerned about pauperising a few 'grannies' in the process. Hang out, that's just like them evil Socialists!

Budgie said...

Jonathan said: "Should we free marketers even be supporting NS&I?"

Do you really think we have a free market? The government controls 50% of GDP and makes the rules for the rest. What we want and what we get are not the same.

As for a "market", it is just the collective term for what people decide to do with their money.

Old BE said...

Is this decision partly to do with the competition rules which say that NS&I is not allowed to increase its market share because of the implicit government subsidy?