It’s being suggested that Labour's ‘British Recovery Bond’ would have a ‘long maturity’, but people ‘should be able to withdraw their savings early’.

This would create a big problem (a form of ‘redemption risk’) for the borrower… (1/3)

For example, 10-year gilt yields are currently 0.64%. A British Recovery Bond with a 10-year maturity could therefore offer 0.5% and still be cheaper for the government.

BUT if savers can cash them in sooner, this is effectively borrowing at a much shorter maturity. (2/3)

In contrast, 5-year gilt yields are just 0.14%. And the Bank of England has swapped gilts for central bank deposits, currently paying an even lower rate of 0.1%.

Thus, at any interest rate above 0.1%, the British Recovery Bond would be a bad deal for the taxpayer. (3/3)

PS. I suppose the government could get round this by imposing big penalties for early withdrawal. But then you're effectively asking people (including small savers) to tie up money for a long time...

PPS. It’s also being suggested that the British Recovery Bond’ would pay a ‘similar interest rate to the rest of the market’, meaning competing savings products.

But the Bond would only makes financial sense if it allows the government to borrow at *lower* rates than otherwise.