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Abstract: 

Governments issued perpetual bonds or “consols”--bonds that never mature--nearly 300 years ago and several times since then. Perpetual bonds have much in common with standard bonds in terms of mechanics, price dynamics, taxation, and other factors. Issuing perpetual bonds would offer benefits for macroeconomic management, cost containment, economic efficiency, and creating novel but useful financial information. Although issuers never would repay principal, taxing income and capital gains on perpetual bonds would be much like taxing finite-maturity bonds. Several analogous precedents suggest that market participants would quickly acclimate to investing in perpetual bonds. Whether demand for consols will be robust is an empirical matter that can only be determined through live trials. With the potential for locking in historically low borrowing costs in perpetuity, governments should take the current opportunity to issue perpetual bonds at least in trial amounts. If they succeeded and their market grew substantially, the benefits of perpetual bonds could be of macroeconomic proportions.

Keywords: government debt, perpetual bonds, consols, interest rates, taxation of fixed income securities

Affiliations:  1: Moreland Associates, LLC.