What is an 'Undated Issue'

An undated issue is a government bond that has no maturity date. As a result, this type of bond would pay interest in perpetuity. Technically speaking, the pre-established, agreed-upon term for which these bonds will pay interest is, essentially, “forever.”

BREAKING DOWN 'Undated Issue'

An undated issue can function, from the bond holder’s perspective, much like a dividend-paying stock, since the holder will continue to receive interest payments on a recurring, ongoing basis for a long period of time.

While the government can redeem an undated issue if it so chooses, it would usually not exercise this option. Since most existing undated issues have very low coupons, there is little or no incentive for redemption. Undated issues are treated as equity for all practical purposes due to their perpetual nature, as opposed to be treated as debt. One difference that sets these bonds apart from other forms of equity, though, is that they come with no corresponded vote attached, so the holder has not voting-related influence or control over the issuing entity.

For obvious reasons, undated issues are sometimes also known as perpetual bonds, or just “perps” for short.

Undated Issues in History

Undated issues have been around for a long time. Many financial historians credit the British government for creating the concept, or at least for introducing the first widely recognized examples. Financial experts recorded the first British release of undated issues back in the 18th century.

Perhaps the best-known undated issues are the U.K. Government's undated bonds or gilts, also referred to as gilt-edged securities. Up until fairly recently, there were eight issues in existence, some of which dated back to the 19th Century. The largest of these issues in recent times was the War Loan, with an issue size of £1.9 billion and a coupon rate of 3.5 percent that was issued in the early 20th century. However, undated gilts have now become a part of financial nostalgia in the UK. The last remaining undated bonds in the UK portfolio were redeemed in July 2015, as part of a program initiated by the British chancellor.

Undated issues continue to be offered in the current financial landscape, but they are not as in demand as the more popular financial instruments such as municipal bonds or Treasury bonds.

Banks consider undated issues to be a form of Tier 1 capital, a category that includes equity capital and disclosed reserves. This means that these bonds are useful in helping banks to fulfill their capital reserve requirements.

  1. Issue

    An issue is the process of offering securities as an attempt ...
  2. Bond

    A bond is a fixed income investment in which an investor loans ...
  3. Gilts

    Gilts are bonds that are issued by the British government and ...
  4. Straight Bond

    A straight bond is a bond that pays interest at regular intervals, ...
  5. Bond Anticipation Note - BAN

    A Bond Anticipation Note (BAN) is a short-term interest-bearing ...
  6. Refunding

    Refunding is the process of retiring or redeeming an outstanding ...
Related Articles
  1. Investing

    Basics Of Federal Bond Issues

    Treasuries are considered the safest investments, but they should still be analyzed when issued.
  2. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  3. Investing

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation.
  4. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  5. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  6. Investing

    Using U.S. Savings Bonds As a Long-term Investment

    A 20-year Series EE savings bond pays more interest than a 20-year Treasury bond. Government-issued long-term bonds might not always be the best choice.
  7. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  8. Investing

    Find the Right Bond at the Right Time

    Learn about the types of bonds you should consider investing in, when you should be buying them and how to compare yields against their time to maturity.
  9. Investing

    Here's What Happens When a Bond Is Called

    Learn why early redemption occurs and how to avoid potential losses.
  1. What is the difference between a gilt edged bond and a regular bond?

    A gilt edged bond is a high-grade bond issue. The term "gilt" is of British origin and originally referred to debt securities ... Read Answer >>
  2. What are the risks of investing in a bond?

    Are you thinking of investing in bond market? Learn more about bond market investment risk, including interest rate risk, ... Read Answer >>
Trading Center