What is an Undated Issue?

An undated issue is a government bond that has no maturity date resulting in interest payments that last into perpetuity.

Understanding Undated Issue

Technically speaking, the pre-established, agreed-upon term for which an undated issue will pay interest is, essentially, “forever.” 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. For obvious reasons, undated issues are sometimes also known as perpetual bonds, or just “perps” for short.

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 being treated as debt. One difference that sets these bonds apart from other forms of equity, though, is that they come with no corresponding vote attached, so the holder has no voting-related influence or control over the issuing entity.

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.

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.

Undated Issues in History

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.