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Big Gilt Auction Tomorrow

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So this is a partial fail??

There really are some tw@ts on this site. If you don't know how gilt auctions are run, then don't bother commenting.

From the DMO:

The total amounts allotted and bids received were as follows:

Amount allotted to competitive bids

£4,491.335 million

Amount allotted to non-competitive bids

Gilt-edged market makers

£500.800 million

Others

£7.865 million

Total

£5,000.000 million

Total bids received

£12,999.888 million

Times covered

2.60 times

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There really are some tw@ts on this site. If you don't know how gilt auctions are run, then don't bother commenting.

From the DMO:

The total amounts allotted and bids received were as follows:

Amount allotted to competitive bids

£4,491.335 million

Amount allotted to non-competitive bids

Gilt-edged market makers

£500.800 million

Others

£7.865 million

Total

£5,000.000 million

Total bids received

£12,999.888 million

Times covered

2.60 times

You can be a **** about it but if the market makers have to take up the slack it is what is and you are what you are.

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Bears of little brain know so little about gilts / bonds etc and can only look in wonder at Bloo Loo, however, thought I would as always contribute a quote or two :

Britain is now one of the most indebted countries in the world.

We have personal debts of £1.5 trillion; national debt rising to £1.4tn; unfunded public-sector pension liabilities of another £1tn; and all this on top of a £1.3tn bank rescue programme. Britain is in deeper debt now than after the second world war and our children will be paying it off for most of their working lives.

The surest sign of this was the way the Budget made no serious attempt to explain how the government intends to pay back the colossal debts racked up during the bubble years, other than to make fantasy assumptions about growth returning to 3.5% in 2011. This "forecast" was an insult to the intelligence of the electorate, and the chancellor has rightly been condemned for delivering it. No serious economist believes that such a "trampoline" bounce-back is possible.

Yet even on these fantasy forecasts, the government is still planning to borrow more over the next five years than the total sum of all government borrowing for the last 300. There are doubts about whether the government will be able to raise even the £220 billion it needs this year to keep its head above water. Public borrowing is running at 12% of GDP: the highest in the G20 nations. Not even Ireland is in such a bad way.

It is why I keep asking if the government can print enough to keep the building societies heads above water AND for them to lend?

The BOE said last week:

The Bank of England is concerned that the UK's banking system is heading for a third wave of crisis that could snuff out fragile signs of recovery in the economy.

On Thursday the Bank surprised the City by announcing that it would pump an extra £50bn of new money into the economy despite recent stockmarket rallies.

Now the Guardian has learned that this increase in quantitative easing was driven by fears in Threadneedle Street that the credit crunch is still sucking the life out of the British economy and the banking sector remains in deep trouble

.....Continued weakness at these banks may prevent the increase in lending that ministers are desperate to see, and dash hopes of a pre-election recovery for Labour.

The Bank of England is also worried that continued stresses in the global financial system will suck money out of the UK as cash-starved international banks bring money back home. Foreign banks are thought to be withdrawing funds from Britain once loans expire, rather than roll them over.

The Government must consider pumping more cash into struggling British banks and conceivably nationalise more of them, or consign itself to years of insipid growth, the Bank of England Governor has warned

Mervyn King said although banks' survival had been assured by recent bail-outs, they would not start lending freely unless more capital was pumped into their balance sheets.

Mr King said: "There is a big difference in practice between the levels of capital banks need to be stabilised... and those required to persuade banks to exhibit normal levels of risk-aversion. How big that gap is is impossible to say... but it looks as if it will be quite big.

So if the banks do not consider they have been given enough to lend or risk lending and the building societies now need to be helped can the BOE print enough money to rescue and LEND?

With mortgage lending down £200bn this year from 2007 and the wholesale market closed are we getting to the point when others will agree with the BOE official who warned Darling "not to stop the housing crash"?

Edited by Sybil13

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So this is a partial fail??
There really are some tw@ts on this site. If you don't know how gilt auctions are run, then don't bother commenting.

From the way 'aliveandkicking' worded it, he was asking a question.

He wasn't commenting, he was asking.

Now ask yourself who comes across as a tw@t.

I do hope you don't have small children.

Child aged 5 - "Dad, what's 1 + 1?"

Father - "oh, you can be such a tw@t"

Perhaps you might like to ponder this.

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So this is a partial fail??

No, it wasn't a partial fail.

The gilt-edged market-makers (GEMMs) are entitled to receive 10% of the nominal amount on offer at the auction i.e. they are automatically allocated gilts at the average accepted price.

This right ensures every GEMM gets an allocation of the gilts on offer, whatever the competitive bids involved. It doesn't indicate that there weren't enough competitive bids, with the GEMMs having to take up the slack.

This was the second-best conventional auction result so far this year, although you also have to consider the yield. Back in March the yield for this same gilt at auction was 2.52%; today it was 2.91%. That's quite a jump in just two months for such a short-dated gilt.

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No, it wasn't a partial fail.

The gilt-edged market-makers (GEMMs) are entitled to receive 10% of the nominal amount on offer at the auction i.e. they are automatically allocated gilts at the average accepted price.

This right ensures every GEMM gets an allocation of the gilts on offer, whatever the competitive bids involved. It doesn't indicate that there weren't enough competitive bids, with the GEMMs having to take up the slack.

This was the second-best conventional auction result so far this year, although you also have to consider the yield. Back in March the yield for this same gilt at auction was 2.52%; today it was 2.91%. That's quite a jump in just two months for such a short-dated gilt.

thanks for that FreeTrader. It's always good to get a professional perspective on what's happening. :)

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thanks for that FreeTrader. It's always good to get a professional perspective on what's happening. :)

Thanks GOM, but just to be clear – I have no direct connection with the gilts market. I'm only posting what I know from experience and publicly-available information.

It's a pity Chumpus Rex isn't posting on the subject any more – he had a lot of insights into the gilts market and was very clear at explaining the mechanics.

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I'm confused here, was 5bn worth of gilts sold or was 5bn raised by selling gilts.

There is a difference, it looks to me like £5bn worth of gilts were sold for £4.04bn. And this is classed as a success?

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I'm confused here, was 5bn worth of gilts sold or was 5bn raised by selling gilts.

There is a difference, it looks to me like £5bn worth of gilts were sold for £4.04bn. And this is classed as a success?

£5bn in nominal was sold, and since the average auction price paid was £97.06 for each £100 nominal, approx £4.85bn in cash was raised.

It all depends on the particular gilt's coupon when it was first issued. The gilt in today's auction has a coupon of 2.25% (i.e it pays £2.25 interest p.a. for each £100 nominal), and because the yield that investors want is higher than 2.25%, they will offer less than the nominal £100 at the auction.

On the other hand the 2019 gilt that was sold on 6 May has a coupon of 4.5%, and seeing as investors were looking for a yield lower than this (3.58%) they offered more for each £100 nominal (£107.57 in fact).

Simplistically:

Desired investor yield > gilt coupon --- means auction price will be < £100

Desired investor yield < gilt coupon --- means auction price will be > £100

It's swings and roundabouts, Charlie. You can't really infer anything because the auction price was less or more than the £100 nominal. It's the comparative yield that's the important factor.

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Thanks GOM, but just to be clear – I have no direct connection with the gilts market. I'm only posting what I know from experience and publicly-available information.

It's a pity Chumpus Rex isn't posting on the subject any more – he had a lot of insights into the gilts market and was very clear at explaining the mechanics.

that's the bit I value the most :)

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£5bn in nominal was sold, and since the average auction price paid was £97.06 for each £100 nominal, approx £4.85bn in cash was raised.

It all depends on the particular gilt's coupon when it was first issued. The gilt in today's auction has a coupon of 2.25% (i.e it pays £2.25 interest p.a. for each £100 nominal), and because the yield that investors want is higher than 2.25%, they will offer less than the nominal £100 at the auction.

On the other hand the 2019 gilt that was sold on 6 May has a coupon of 4.5%, and seeing as investors were looking for a yield lower than this (3.58%) they offered more for each £100 nominal (£107.57 in fact).

Simplistically:

Desired investor yield > gilt coupon --- means auction price will be < £100

Desired investor yield < gilt coupon --- means auction price will be > £100

It's swings and roundabouts, Charlie. You can't really infer anything because the auction price was less or more than the £100 nominal. It's the comparative yield that's the important factor.

Thanks FT.

The 4.04bn came from a screen shot earlier in the thread.

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No, it wasn't a partial fail.

The gilt-edged market-makers (GEMMs) are entitled to receive 10% of the nominal amount on offer at the auction i.e. they are automatically allocated gilts at the average accepted price.

This right ensures every GEMM gets an allocation of the gilts on offer, whatever the competitive bids involved. It doesn't indicate that there weren't enough competitive bids, with the GEMMs having to take up the slack.

This was the second-best conventional auction result so far this year, although you also have to consider the yield. Back in March the yield for this same gilt at auction was 2.52%; today it was 2.91%. That's quite a jump in just two months for such a short-dated gilt.

Thanks FT.

I can see David Cameron was right also.

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£5bn in nominal was sold, and since the average auction price paid was £97.06 for each £100 nominal, approx £4.85bn in cash was raised.

It all depends on the particular gilt's coupon when it was first issued. The gilt in today's auction has a coupon of 2.25% (i.e it pays £2.25 interest p.a. for each £100 nominal), and because the yield that investors want is higher than 2.25%, they will offer less than the nominal £100 at the auction.

On the other hand the 2019 gilt that was sold on 6 May has a coupon of 4.5%, and seeing as investors were looking for a yield lower than this (3.58%) they offered more for each £100 nominal (£107.57 in fact).

Simplistically:

Desired investor yield > gilt coupon --- means auction price will be < £100

Desired investor yield < gilt coupon --- means auction price will be > £100

It's swings and roundabouts, Charlie. You can't really infer anything because the auction price was less or more than the £100 nominal. It's the comparative yield that's the important factor.

Cheers for the examples - always useful.

Bit in bold though - isn't that wrong ? The investors were not actually looking for a lower yield - why would they be !!??

Isn't the case that because the demand went up, due to the high yield, the price went up. Therefore reducing the yield below the coupon ?

Unless there are peopleout there looking for lower yields.. :blink:

Edited by ccc

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Cheers for the examples - always useful.

Bit in bold though - isn't that wrong ? The investors were not actually looking for a lower yield - why would they be !!??

Isn't the case that because the demand went up, due to the high yield, the price went up. Therefore reducing the yield below the coupon ?

Unless there are peopleout there looking for lower yields.. :blink:

Yes, my apologies, it was badly worded. I should have said "investors were prepared to accept a yield lower than this". They certainly wouldn't be bidding for a lower yield. :)

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Bloomberg again:

Even after S&P cut its outlook, the government sold all 5 billion pounds ($7.9 billion) of five-year bonds it offered at an auction today.

“The move does not mean a downgrade is inevitable,” wrote Shaun Osborne and Jacqui Douglas, currency strategists at TD Securities Inc. in Toronto, in a research note today. “The auction went well. The markets appear to be casting around for other countries that may be facing a similar fate and clearly, the U.S. is the elephant in this particular room.

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Yes, my apologies, it was badly worded. I should have said "investors were prepared to accept a yield lower than this". They certainly wouldn't be bidding for a lower yield. :)

Thanks. Just checking.

I know there are some weird and wonderful investment strategies out there. :ph34r:

Edited by ccc

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