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Big Gilt Auction Tomorrow

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Success or failure?

This will be the biggest this year and with rates so low there must be some danger of failure.

Would a consequence be immediate interest rate hikes?

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Success or failure?

This will be the biggest this year and with rates so low there must be some danger of failure.

Would a consequence be immediate interest rate hikes?

What more hikes? I'll look at for the price. 90p would be nice!

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A gilt auction is like selling pound notes when the BOE has said they will buy £75 Billion similar British notes under QE this year and do more if necessary or less if necessary to maintain inflation in the 0-2% range.

So the auction will succeed.

The only unknown is the discount or premium on the value of the interest paying 'pound notes' when they are bought.

Do they get bought for 99.999p or even 100.0001p or much less at 99.5p?

If this is the first auction since QE was announced then this auction will succeed without a shadow of a doubt.

It will be the later auctions that really determine what is going on.

Edit: I see this is about number 6 auction since QE was announced. They dont seem to be failing.

Edited by aliveandkicking

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A gilt auction is like selling pound notes when the BOE has said they will buy £75 Billion similar British notes under QE this year and do more if necessary or less if necessary to maintain inflation in the 0-2% range.

So the auction will succeed.

The only unknown is the discount or premium on the value of the interest paying 'pound notes' when they are bought.

Do they get bought for 99.999p or even 100.0001p or much less at 99.5p?

If this is the first auction since QE was announced then this auction will succeed without a shadow of a doubt.

It will be the later auctions that really determine what is going on.

Edit: I see this is about number 6 auction since QE was announced. They dont seem to be failing.

Thats a "I havent a clue like everyone else" then?

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i thought he made a reasonable assessment. how can the auction fail when the government is on both sides of the trade?

what makes you say that.....are you suggesting they sell the bonds and immediately buy them back?

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what makes you say that.....are you suggesting they sell the bonds and immediately buy them back?

Bloo Loo

You are constantly beligerant with me. If the government are active in the market to ensure british debt is valueable relative to British currency then government auctions paid for in pounds cannot fail.

The stated objective of QE is to devalue Sterling relative to what people can buy at the target devaluation of 0-2% per annum.

If the british government want to sex that up and you want to help them do that it does not change the reality of what is being done.

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Bloo Loo

You are constantly beligerant with me. If the government are active in the market to ensure british debt is valueable relative to British currency then government auctions paid for in pounds cannot fail.

The stated objective of QE is to devalue Sterling relative to what people can buy at the target devaluation of 0-2% per annum.

If the british government want to sex that up and you want to help them do that it does not change the reality of what is being done.

im not beligerent to you...i was just pointing out that you made a point and added the yes but clause, indicating that it could go either way, and that no amount of rational justification could predict.

I had the same problem with the house price boom....why was it going on and where was the money coming from? now we know....it was the hidden fraud that sustained it.

As for a stated objective....is that true? Ive not seen it....I thought the stated objective was to ease cash into the market to get lending going again.

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im not beligerent to you...i was just pointing out that you made a point and added the yes but clause, indicating that it could go either way, and that no amount of rational justification could predict.

I had the same problem with the house price boom....why was it going on and where was the money coming from? now we know....it was the hidden fraud that sustained it.

As for a stated objective....is that true? Ive not seen it....I thought the stated objective was to ease cash into the market to get lending going again.

The information is provided on the BOE home page

"Quantitative Easing

The Monetary Policy Committee announced on 5 March 2009 that, in addition to setting Bank Rate at 0.5%, it would start to inject money directly into the economy in order to meet the inflation target."

"It boosts the supply of money by purchasing assets like Government and corporate bonds – a policy often known as 'Quantitative Easing'."

And there is a video of Merv

and a transcript of the video too.

"

Mervyn King

I don’t think it’s an experiment in the sense of doing something completely new. What we’re

trying to do is to increase the supply of money in the economy. Normally, it grows at a

healthy, positive rate to support growth, keep inflation close to our target. Since last year, the

increase in the supply of money has fallen; it’s basically flat now. Money is not growing

quickly enough to support economic growth. Normally, we cut interest rates in order to boost

the supply of money. We’ve done that; it has helped, but we need to go further. What we’ve

announced today are measures to increase the supply of money injected directly into the

wider economy.

Stephanie Flaunders

Do you know exactly what impact these purchases will have?

Mervyn King

Well, they will increase the amount of money that’s held by the wider economy. One would

expect that this would influence both their decisions to spend directly or decisions to

reallocate the assets they own which might increase the value of assets, and that will lead

other people to feel better off and, hence, to spend. The idea here is to try to ensure that

increase in the supply of money in the economy as a whole rises to a level consistent with the

beginnings of an economic recovery and to keeping inflation close to our target.

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Thanks for that, but that is a step away from the government being on both sides of the auction...there is another step...the buy back with the QE.

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Thanks for that, but that is a step away from the government being on both sides of the auction...there is another step...the buy back with the QE.

That is a bit like saying if i throw a ball in the air it is a separate unrelated step for it to fall to earth.

The gravity of the buy back is a known force. The price of buy backs is know in the market by the people involved in the trades. They know that if they bid a certain price for a gilt what the approximate government buy back price will be if they chose to sell.

The BOE can legitimately act as market maker to provide liquidity to the system it is running to ensure that confidance is maintained that a long term deflationary event is something the government will use all tools to avoid.

There is a price here though. Deflation makes a bond paying a tiny interest to the holder a very valueable cash like instrument that becomes more valueable over time while all other assets fall in value. The BOE is chosing inflation which means these cash like instruments have to have a higher yield to the holders but if the BOE are buyer then that yield is at least smoothed out rather than likely to spike and create panics about direction of interest rates.

Meanwhile we do have massive deflationary forces in action as the banks delever to build up a buffer for the higher loan losses as they meanwhile receive massive repayment income from the economy and are not lending all of that repayment income back out into the economy again. The banks are in fact hoovering up the money from the economy and storing it in safe assets. They are therefore potential buyers of interest earning safe government and corporate bonds.

But if the BOE can provide an inflationary force buisinesses and consumers will feel safer about borrowing when they can afford to do so knowing that their debt is being devalued relative to their increasing income. If people feel safer about borrowing then the banks will feel safer about not storing the money that is draining from the economy back to them via the loan repayments.

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That is a bit like saying if i throw a ball in the air it is a separate unrelated step for it to fall to earth.

The gravity of the buy back is a known force. The price of buy backs is know in the market by the people involved in the trades. They know that if they bid a certain price for a gilt what the approximate government buy back price will be if they chose to sell.

The BOE can legitimately act as market maker to provide liquidity to the system it is running to ensure that confidance is maintained that a long term deflationary event is something the government will use all tools to avoid.

There is a price here though. Deflation makes a bond paying a tiny interest to the holder a very valueable cash like instrument that becomes more valueable over time while all other assets fall in value. The BOE is chosing inflation which means these cash like instruments have to have a higher yield to the holders but if the BOE are buyer then that yield is at least smoothed out rather than likely to spike and create panics about direction of interest rates.

Meanwhile we do have massive deflationary forces in action as the banks delever to build up a buffer for the higher loan losses as they meanwhile receive massive repayment income from the economy and are not lending all of that repayment income back out into the economy again. The banks are in fact hoovering up the money from the economy and storing it in safe assets. They are therefore potential buyers of interest earning safe government and corporate bonds.

But if the BOE can provide an inflationary force buisinesses and consumers will feel safer about borrowing when they can afford to do so knowing that their debt is being devalued relative to their increasing income. If people feel safer about borrowing then the banks will feel safer about not storing the money that is draining from the economy back to them via the loan repayments.

indeed, but the BoE have limited the amount of QE cash, so not all bonds will have a guarantee of a buyer if a bank or institution needs to sell......course, as they have done already, they could announce another tranch as the last lot was not quite enough....then we really are in trouble.

congrats on the baby girl btw

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indeed, but the BoE have limited the amount of QE cash, so not all bonds will have a guarantee of a buyer if a bank or institution needs to sell......course, as they have done already, they could announce another tranch as the last lot was not quite enough....then we really are in trouble.

congrats on the baby girl btw

But the idea is to ensure we have inflation. If we get inflation they dont need this action and they just have to manage the balance sheet issues of holding corporate debt or government debt to term or selling the debt if inflation picks up too much and they dont want to raise interest rates.

If there is deflation then safe bonds are like cash paying interest while all other assets decline in price relative to cash. The idea here is to discourage people moving to cash and making it clear that if you save your money it will be devalued.

Dont forget also that bonds are actively traded. It is the trading that seems the desirable thing rather than the ability to hold them very long term to redepemption when more or less they are worthless.

Then there is the issue of government debt issuance which will be constrained by inflation.

The fight now is clear. Deflation. Right now inflation is the desired objective and will bring about the big relief rally in all assets which will lift all boats. And then of course other battles will be ahead.

You are effectively worrying about inflation when we have deflation of the assets that count.

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RESULT OF THE SALE BY AUCTION OF £5,000 MILLION OF 2¼% TREASURY GILT 2014

The United Kingdom Debt Management Office ("DMO") announces that the auction of £5,000 million

2¼% Treasury Gilt 2014 has been allocated as follows:

(Note: all prices in this notice are quoted in pounds and pence)

1. All bids which have been accepted at the lowest accepted price have been allotted approximately

91.5% of the amount bid for.

Competitive bids made at prices above the lowest accepted price have been allotted in full.

Competitive bids made at prices below the lowest accepted price have been rejected.

http://www.dmo.gov.uk/documentview.aspx?do...onventional.pdf

Bid/Cover 2.60

Edited by Tom Peters

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RESULT OF THE SALE BY AUCTION OF £5,000 MILLION OF 2¼% TREASURY GILT 2014

The United Kingdom Debt Management Office ("DMO") announces that the auction of £5,000 million

2¼% Treasury Gilt 2014 has been allocated as follows:

(Note: all prices in this notice are quoted in pounds and pence)

1. All bids which have been accepted at the lowest accepted price have been allotted approximately

91.5% of the amount bid for.

Competitive bids made at prices above the lowest accepted price have been allotted in full.

Competitive bids made at prices below the lowest accepted price have been rejected.

http://www.dmo.gov.uk/documentview.aspx?do...onventional.pdf

Bid/Cover 2.60

So this is a partial fail??

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