Tuesday, Apr 22, 2008
Gilts market may be hit by bank bail-out - Ya think?!
Telegraph: Goldman Sachs warns on gilt market after BoE's bail-out
Goldman Sachs has advised clients to take out "short" positions on British 30-year Gilts before a rash of new issues by the Government floods the bond market. The closely watched US investment bank said it was concerned about the "heavy supply of longer-dated paper" likely to weigh on the price of British sovereign debt. The bank has closed its "short" positions on the pound after raking in bumper profits on the precipitous slide in sterling since the Northern Rock debacle.
Yields on the benchmark 10-year Gilt surged from 4.43pc to 4.71pc last week, one of the sharpest moves in recent years. They are now 67 basis points above German Bunds, and 88 basis points above US Treasuries.
Posted by lvmreader @ 10:05 AM (222 views) Add Comment
4 Comments
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1. Orwell said...
IVM Reader. Can you explain exactly what is going on? Are you saying that these bonds have to be offered short or long term and what are you actually saying about the market?
Thanks!
2. whiteknight said...
Ah ...... b*llocks. Damn. Damn.
3. uncle tom said...
With sterling and the dollar sliding hand-in-hand against other world currencies, there is very little reason why investors from overseas would want to buy govt. stock from either country at the moment. Meanwhile both the US and UK are committed to creating large amounts of new stock. As the supply of domestic investors is not infinite, the possibility of over-supply therefore looks very real.
That problem, however, can feed itself - if investors believe the price of gilts and treasuries is going to fall, they will start selling - either to swap long dated paper for short (which suffers less price fluctuation relative to yield) or to switch into equities.
Some economic models suggest we will have a bull run on the equity markets for the next few months, prior to it falling over badly in the early part of '09.
If those models are believed, then we could see a flight to equities at the same time that the government (on both sides of the pond) is trying to create huge quantities of new paper.
This looks like a recipe for rapid yield increases, especially on long dated securities, that could force up interest rates.
4. sold 2 rent 1 said...
UT,
I think stocks have got a bit more panic selling in them before the money supply growth lifts them off the floor.