The Gilts Thread

[Ash4781]

http://www.nasdaq.com/aspx/stock-market-ne...ime-as-possible

LONDON -(Dow Jones)- Bank of England Deputy Governor for Monetary Policy Charlie Bean said Monday the central bank is aiming to keep its benchmark interest rate at its current ultra-low level for as short a period as possible.

Speaking to BBC Radio Bristol during a national tour to explain the Bank's policy of quantitative easing, through which it is buying GBP125 billion of securities with freshly created central bank money, Bean wouldn't give any indication of how soon rates were likely to start rising.

He reiterated that the downturn in the U.K. economy appeared to have " bottomed" out, but said that businesses generally remained "cautious," as they were waiting to see how conditions develop.

"We're trying to ensure that this is as short-a-lived period of unusually low interest rates as we can make it," Bean said, in response to a question on the plight of savers who are receiving little income on their investments due to the extremely loose nature of monetary policy.

He added that the Bank would reduce monetary stimulus and raise rates back to a more normal level as the economy recovered.

Many economists expect interest rates, which have stood at 0.5% since March, to stay at that level until well into next year.

There's a GDP estimate due on Friday.

Presumably all set for interest rate rises post general election ?

[drrayjo]

MPC minutes trigger jitters in the gilt market over QE plans

The UK gilt market was alarmed on Wednesday after the minutes of the Bank of England's July Monetary Policy Committee meeting raised fears that it would not extend its quantitative easing (QE) programme beyond the £125bn already committed.

Sure are skittish critters aint they.

http://www.telegraph.co.uk/finance/finance...r-QE-plans.html

Edited July 22, 2009 by drrayjo

[FreeTrader]

Sure are skittish critters aint they.

http://www.telegraph.co.uk/finance/finance...r-QE-plans.html

Some of the concern with the MPC at present must be the upcoming CPI profile.

I posted this chart recently which shows why annualised CPI might start heading up quickly soon because of the fall between September 2008 and January 2009.

Today we learned (somewhat anecdotally) that Alistair Darling has confirmed that the 2.5% VAT reduction will be reversed as planned in January 2010, one year on from the intermediate CPI low in the chart.

It's a big problem for the BoE. They keep trying to reassure markets that the inflation target is their priority and that they won't hesitate to reverse stimulatory measures if inflation signals develop. Consequently if CPI goes above 3% in January it's not going to look good if they've embarked upon a new programme of QE.

So, there's a big test coming up. If CPI rises towards 3%, is the MPC going to dismiss it as a temporary aberration and continue with more QE, or is it going to stand fast or even tighten monetary policy?

From a gilts market point of view, I think patience will start to wear thin if the MPC gives some lame excuse on inflation. If rising CPI is waived aside, the notion that the BoE is solely concerned with monetising UK govt debt will gain traction, and the credibility of the Bank as an independent body will receive yet another blow.

[shedfish]

absolutely the meat on the bones, this thread!

UK yield is at 3.88 again

[FreeTrader]

UK yield is at 3.88 again

The 10-year closed at 3.97%, up 13 basis points on the day.

Gilt prices took quite a tumble today, with the yield on the 5-year gilt closing at 3.08%, the first time it's been above 3% this year. The yield on this gilt is now back to levels seen in December when the BoE's bank rate was at 2%.

[Bloo Loo]

Some of the concern with the MPC at present must be the upcoming CPI profile.

I posted this chart recently which shows why annualised CPI might start heading up quickly soon because of the fall between September 2008 and January 2009.

Today we learned (somewhat anecdotally) that Alistair Darling has confirmed that the 2.5% VAT reduction will be reversed as planned in January 2010, one year on from the intermediate CPI low in the chart.

It's a big problem for the BoE. They keep trying to reassure markets that the inflation target is their priority and that they won't hesitate to reverse stimulatory measures if inflation signals develop. Consequently if CPI goes above 3% in January it's not going to look good if they've embarked upon a new programme of QE.

So, there's a big test coming up. If CPI rises towards 3%, is the MPC going to dismiss it as a temporary aberration and continue with more QE, or is it going to stand fast or even tighten monetary policy?

From a gilts market point of view, I think patience will start to wear thin if the MPC gives some lame excuse on inflation. If rising CPI is waived aside, the notion that the BoE is solely concerned with monetising UK govt debt will gain traction, and the credibility of the Bank as an independent body will receive yet another blow.

Bernanke was asked this very question yesterday. He said he would not hesitate to tighten...unless congress ordered otherwise.

[MOP]

The 10-year closed at 3.97%, up 13 basis points on the day.

Gilt prices took quite a tumble today, with the yield on the 5-year gilt closing at 3.08%, the first time it's been above 3% this year. The yield on this gilt is now back to levels seen in December when the BoE's bank rate was at 2%.

This needs to go in the pinned charts thread.

[FreeTrader]

Bernanke was asked this very question yesterday. He said he would not hesitate to tighten...unless congress ordered otherwise.

It's going to be interesting. If you go back to the MPC minutes in December 2008, they made the following observation:

In the near term, it was likely that the profile for inflation would be strongly influenced by the

impact of the temporary reduction in the standard rate of VAT from 17.5% to 15% for 13 months.

The direct effects might reduce CPI inflation by around one percentage point through most of 2009,

followed by a corresponding addition to inflation during 2010, depending on precisely when and

how retailers responded to the changes.

[OnlyMe]

It's going to be interesting. If you go back to the MPC minutes in December 2008, they made the following observation:

In the near term, it was likely that the profile for inflation would be strongly influenced by the

impact of the temporary reduction in the standard rate of VAT from 17.5% to 15% for 13 months.

The direct effects might reduce CPI inflation by around one percentage point through most of 2009,

followed by a corresponding addition to inflation during 2010, depending on precisely when and

how retailers responded to the changes.

So basically the target they are following is even more manipulated ******** than it was before.

Wait till the tax rises hit, that and the interim inflation is going to destroy family budgets.

Looks like breakout on the treasury chart - from levels never to be seen again and never to be believed when people look back in history.

[eurasian69]

if you like CPI predictions, have a look at this one

CPI Jan 2009: 108.7

CPI Jun 2009: 111

thats a 2.1% rise in just 5 months

annualised, that gives a 5.1% rise over 12 months!!

so... if the rate of increase of the CPI index for the first 5 months of the year continues until the end of the year, we will be seeing a CPI reading in the ballpark of 5%+

i wonder how this little nugget is going down at the BoE

[Ash4781]

The 10-year closed at 3.97%, up 13 basis points on the day.

Gilt prices took quite a tumble today, with the yield on the 5-year gilt closing at 3.08%, the first time it's been above 3% this year. The yield on this gilt is now back to levels seen in December when the BoE's bank rate was at 2%.

Interesting times. I'm struggling to see the point of QE though!

Edited July 23, 2009 by Ash4781

[Traktion]

absolutely the meat on the bones, this thread!

UK yield is at 3.88 again

+1!

It is starting to get interesting, just as many here predicted it would.

[Traktion]

Interesting times. I'm struggling to see the point of QE though!

I think it just bought some time. IMO, doing it again won't have the same effect. It was a card that could only be played once, before questions of motive were asked.

As Freetrader says, if they start to announce more QE now, is it not just to monetise government debt?

Heading into the latter part of this year is going to get interesting!

[Guest spp]

Holy $HIT

http://market-ticker.denninger.net/archive...n-Schedule.html

[Traktion]

Holy $HIT

http://market-ticker.denninger.net/archive...n-Schedule.html

With China being progressively more vocal about not buying more US debt too, it is starting to look rather ominous... it will be an interesting week!

[Democorruptcy]

So what should anyone with an STR fund be doing?

[Bloo Loo]

With China being progressively more vocal about not buying more US debt too, it is starting to look rather ominous... it will be an interesting week!

well, im not buying B for 2 either. that'll learn them!

[clemo]

Whats peoples thoughts on index linked gilts. I think fixed uk gilts are a pile of shite but I do expect significant inflation. The one thing holding me back is that they fiddle the inflation rate and the solvency/finances of this country. Dont really want to be locked in to government bond till 2013.

[Little Professor]

Bank of England attacked for gilts sell-off

Angry investors blasted the Bank of England on Thursday when it sparked a sell-off in the gilts market after one of the biggest government bond offerings of the year.

In an interview published 20 minutes after the £5bn bond deal was finalised, Andrew Sentance, an external member of the Bank’s interest rate-setting monetary policy committee, said it was considering whether to put on hold its quantitative easing programme designed to pump money into the economy.

Mr Sentance told Bloomberg that the issue at the committee’s next meeting, due to be held in early August, would be “whether we’re now going to move into a phase where we’re watching and observing what happens in the economyâ€.

His remarks raised expectations in financial markets that the Bank might be ready for a sustained pause in its injections of cash into the economy through the purchase of government bonds.

Scott Thiel, head of European fixed income at BlackRock, said: “This is one of the biggest single gilts transactions of all time, and the Bank jolts the market with significant market-moving information only minutes after the deal has been sealed.â€

Mr Sentance’s comments irked government officials. One said: “The problem with the external members of the Bank of England is that they live in this cocooned, separate world and do not consider how they might move the markets.â€

Benchmark 10-year gilt yields, which have an inverse relationship to the price of bonds, jumped 0.12 percentage points to 3.96 per cent on investor nervousness that quantitative easing could be nearing its end.

Investors said that, although yields on the inflation-linked bond sold on Thursday remained steady, Mr Sentance’s remarks spooked the market and could have repercussions for holders of gilts across all maturities.

The confusion overshadowed a successful bond offering by the UK Debt Management Office, which operates at arm’s length from the Treasury.

The inflation-linked gilt maturing in 2042 was the largest ever single transaction for a UK index-linked security.

[Bloo Loo]

Bank of England attacked for gilts sell-off

Angry investors blasted the Bank of England on Thursday when it sparked a sell-off in the gilts market after one of the biggest government bond offerings of the year.

In an interview published 20 minutes after the £5bn bond deal was finalised, Andrew Sentance, an external member of the Bank’s interest rate-setting monetary policy committee, said it was considering whether to put on hold its quantitative easing programme designed to pump money into the economy.

Mr Sentance told Bloomberg that the issue at the committee’s next meeting, due to be held in early August, would be “whether we’re now going to move into a phase where we’re watching and observing what happens in the economyâ€.

His remarks raised expectations in financial markets that the Bank might be ready for a sustained pause in its injections of cash into the economy through the purchase of government bonds.

Scott Thiel, head of European fixed income at BlackRock, said: “This is one of the biggest single gilts transactions of all time, and the Bank jolts the market with significant market-moving information only minutes after the deal has been sealed.â€

Mr Sentance’s comments irked government officials. One said: “The problem with the external members of the Bank of England is that they live in this cocooned, separate world and do not consider how they might move the markets.â€

Benchmark 10-year gilt yields, which have an inverse relationship to the price of bonds, jumped 0.12 percentage points to 3.96 per cent on investor nervousness that quantitative easing could be nearing its end.

Investors said that, although yields on the inflation-linked bond sold on Thursday remained steady, Mr Sentance’s remarks spooked the market and could have repercussions for holders of gilts across all maturities.

The confusion overshadowed a successful bond offering by the UK Debt Management Office, which operates at arm’s length from the Treasury.

The inflation-linked gilt maturing in 2042 was the largest ever single transaction for a UK index-linked security.

its not fair...ITS NOT ITS NOT ITS NOT....IM TELLIN!

[Belfast Boy]

So what should anyone with an STR fund be doing?

Worrying like the rest of us

[Panda]

Like i have said before, that last 25bn, maybe, but not a dead cert, we have had 125bn, there is no way this will run beyond the 150bn.

QE will be in the rear view mirror by late Autumn, and the base rate will either go up;

1) A sudden quick jumps up over a short period of time because of an event? 1%, 0.5%, 1% wtc etc

2) Or, quiety nudging up very slowly, back to 5% by winter 2010? 0.25%, 0.25%, 0.25%, 0.25%, 0.25%, 0.25%, 0.25%, 0.25%, 0.25%, 0.25%, 0.25%, 0.25%,

0.25%, 0.25%, 0.25%, 0.25%, 0.25%,

Where's Freetrader when you want him?

[Traktion]

I found this article. It's a couple of months old, but seems rather apt!

http://adask.wordpress.com/2009/05/12/riding-the-debt-tiger/

A juicy bit:

“‘You’re just paying more and more interest and having to borrow more and more money to pay the interest,’ said Charles S. Konigsberg, chief budget counsel for the Concord Coalition, which advocates lower deficits.â€

How long can we continue to borrow money to simply pay the interest on money we’ve already borrowed? It’s like going to a second loan shark to borrow more money to pay off the “vig†owed to first loan shark. It’s like using your MasterCard to pay off your Visa to pay off your American Express. And note that we’re not talking about borrowing more money to repay the existing debt—we’re talking about borrowing more money and incurring more interest costs to simply keep current on repaying our existing interest costs.

EDIT: P.S. The above post is about the US, not the UK.

Edited July 24, 2009 by Traktion

[getdoon_weebobby]

looks like rates are going up sharpish

cpi looks set to fly

feck me uk is in a mess all the tax take is going to have to go on interest

at least Mcstalin will be out on his nappy wearing ass so rates should go up as opposed to the zimbabwe route

[Ash4781]

How did the gilts behave today?

BBC market data looks wrong to me (yields very high) http://newsvote.bbc.co.uk/1/shared/fds/hi/...ilt/default.stm

Maybe I'm reading it wrong

UK Gilts

Paper rate maturity UK time yield price change

Treas 5.75% 07-Dec-2009 Fri 14:30 5.65% 101.7 0.24 down

Treas 4.75% 07-Jun-2010 Fri 15:45 4.59% 103.45 0.01 down

Treas 6.25% 25-Nov-2010 Fri 11:30 5.85% 106.75 0.19 down

Treas 4.25% 07-Mar-2011 Fri 15:45 4.07% 104.55 0.1 down

Conv 9.00% 12-Jul-2011 Fri 13:45 7.86% 114.55 0.29 up

Treas 5.00% 07-Mar-2012 Fri 16:30 4.68% 106.9 0.03 up

Treas 5.25% 07-Jun-2012 Fri 15:30 4.89% 107.3 0.28 down

Treas 4.50% 07-Mar-2013 Fri 15:30 4.28% 105.2 0.24 down

Treas 8.00% 27-Sep-2013 Fri 15:30 6.71% 119.3 0.25 down

Treas 5.00% 07-Sep-2014 Fri 16:30 4.58% 109.08 0.04 up

Treas 4.75% 07-Sep-2015 Fri 16:15 4.41% 107.8 0.22 down

Treas 8.00% 07-Dec-2015 Fri 16:45 6.35% 125.99 0.06 down

Treas 4.00% 07-Sep-2016 Fri 16:30 3.90% 102.5 0.31 down

Treas 8.75% 25-Aug-2017 Fri 16:00 6.48% 134.95 0.19 down

Treas 5.00% 07-Mar-2018 Fri 16:00 4.56% 109.7 0.32 up

Treas 4.50% 07-Mar-2019 Fri 16:30 4.33% 103.95 0.28 down

Treas 4.75% 07-Mar-2020 Fri 16:00 4.46% 106.6 0.48 up

Treas 8.00% 07-Jun-2021 Fri 16:00 5.81% 137.65 0.56 up

Treas 5.00% 07-Mar-2025 Fri 16:00 4.73% 105.8 0.35 up

Treas 4.25% 07-Dec-2027 Fri 16:30 4.43% 95.95 0.16 up

Treas 6.00% 07-Dec-2028 Fri 14:15 5.05% 118.9 0.44 up

Treas 4.75% 07-Dec-2030 Fri 16:30 4.67% 101.64 0.29 up

Treas 4.25% 07-Jun-2032 Fri 16:00 4.47% 95.15 0.48 up

Treas 4.25% 07-Mar-2036 Fri 17:15 4.50% 94.47 0.28 up

Treas 4.75% 07-Dec-2038 Fri 13:30 4.65% 102.25 0

Treas 4.50% 07-Dec-2042 Fri 11:00 4.60% 97.92 0.16 down

Treas 4.25% 07-Dec-2046 Fri 10:30 4.52% 93.95 0.23 down

Treas 4.25% 07-Dec-2049 Fri 09:00 4.52% 94 0.28 down

Treas 4.25% 07-Dec-2055 Fri 16:30 4.47% 95.1 0.68 up