U.S. Experts Watching As Britain Issues Securities Indexed to Inflation Rate
In a high-stakes gamble that is being watched with interest by econ-I- omists and money managers in this 2åÈ country, the British government has ÛÏ- begun to issue long-term securities . Û_with interest rates indexed to the :^rate of inflation.</br></br>Z Two billion-pound bond issues on .which the interest rate is 2 percent Û÷s'plus the rate of increase in BritainÛªs ;-;general index of retail prices were sold to insurance companies and Û¢-^pension funds last spring. In Sep-^tember, the Bank of England also Ð¼--greatly expanded the market for its ; .-index-linked national savings certif-Û¢2-icates, making them available to in--l"dividuals of any age instead of just to the elderly and also to some institutional buyers.</br></br>Though the indexed bonds were described officially as an experiment and constitute only a small portion of government borrowing, they may be part of a trend toward indexed securities in Britain. ÛÏIt is expected that further issues of index-linked stock will be made in the future,Û a Bank of England statement said.</br></br>In issuing indexed bonds, the government created an attractive instrument for investors because it offered them a guaranteed yield insulated from inflation, analysts here said. But it created potential long-term problems for the battered national treasury, because if the inflation rate rises, the cost of repaying the borrowings could be very heavy.</br></br>In the second quarter of 1981, British prices rose at an annual rate of 19.6 percent, the highest rate in a year and a sharp increase over the 18 percent figure for all of 1980.