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Govt Just Sold £5bn Worth Of Debt Today

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The Debt Management Office this morning sold gilts dated 2014 with a nominal value of £5 billion for £4.845bn which sounds to me like a bit of a disaster. But Robert Peston is all over his blog saying it's fine, never has so much money been raised by so few etc, and yes, I agree, it's the biggest debt issuance ever - but the debt is being sold AT A LOSS!

They're not even getting face value for the debt. How is that fine?

You should be able to see the auction results here.

Is this underpaying normal? Anyone out there know bonds?

:blink:

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The Debt Management Office this morning sold gilts dated 2014 with a nominal value of £5 billion for £4.845bn which sounds to me like a bit of a disaster. But Robert Peston is all over his blog saying it's fine, never has so much money been raised by so few etc, and yes, I agree, it's the biggest debt issuance ever - but the debt is being sold AT A LOSS!

They're not even getting face value for the debt. How is that fine?

You should be able to see the auction results here.

Is this underpaying normal? Anyone out there know bonds?

:blink:

only 16% interest over the five years (so around 3% per year)

if i could borrow at 3% i would. of course this is impossible as i cannot print money to buy part of my own debt issuance and bid up its price (lower its discount)

FRAUD. get out of paper while people are still foolish enough to want it.

Edited by Where is my pen?

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They're not even getting face value for the debt. How is that fine?

It's the difference between coupon and yield. If the coupon had been 3%, they would have sold them above par. There is no economic meaning in the numbers other than the fact the yields at the short end are gently rising which is why this bond is slipping below par.

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there is only one Bond, and he is shaken, but never stirred.

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no matter how many times people talk about bonds, i still havent read a description i understand.

there is nothing really to understand.

the government sold a promise to pay 5bn pounds in 5 years time for 4.845bn.

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there is only one Bond, and he is shaken, but never stirred.

the old bond is well remembered.

am i alone in thinking that bond has perhaps run its course. hence the change about with mr craig? i got fed up with bond somewhere during brosnan era (i thought golden eye was great though)

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the old bond is well remembered.

am i alone in thinking that bond has perhaps run its course. hence the change about with mr craig? i got fed up with bond somewhere during brosnan era (i thought golden eye was great though)

started to watch the last one but the cut scenes gave me an epileptic fit.

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there is nothing really to understand.

the government sold a promise to pay 5bn pounds in 5 years time for 4.845bn.

desperate times = desperate measures. ;)

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Wonder which UK Pension Fund was frogmarched in to the Auction Room?

None, they buy them today and sell them straight on to the government (Bank of England) tomorrow (at a profit) nice work if you can get it and don't mind being paid in Zimbabwean pounds (or is it UK pounds? I always get confused over them, which ones are genuine, and which ones are just having more and more printed?)

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no matter how many times people talk about bonds, i still havent read a description i understand.

A bond is a loan at interest which has been packaged up as a negotiable instrument so that it can easily be bought and sold.

If you buy a 3 year bond today in the sum of £1,000 with a fixed 5% yield you have to pay the issuer £1,000 today, they will pay you 5% p.a. for 3 years at which time the bond will mature and you'll get your £1,000 back. But... imagine something very unusual happens such that interest rates go up to 10% the day after you bought your bond. People with £1,000 to invest wont want to buy your bond which only yields 5%, they can get 10% elsewhere so you'll have to heavily discount the price. £500 invested at 10% will give the same interest payments as your bond but you wont have to discount it by that much, you need to factor in that its value will still be £1,000 at maturity.

Of course, if interest rates go down while you hold the bond you'll be able to sell it at a profit.

A number of factors can effect bond prices including general interest rates and the creditworthiness of the bond issuer.

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