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gruffydd

Brit And Us Government Bonds Face Being Junked

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http://ftalphaville.ft.com/blog/2009/05/22...vernment-bonds/

Ho ho ho.

Jim Reid at Deutsche Bank argued thus in a note issued early on Friday morning (emphasis ours):

There is not an insubstantial tail risk that we’ll all wake up one day and find that the appetite to fund the generally unparalleled peace time Government spending is suddenly reduced. We think that we are going to have this tail risk hanging over us for many quarters and even years and predicting if and when that day comes is going to prove very difficult.

The best possible (actually least bad) solution for the economy is for inflation to come back quickly enough for the huge Western World debt burdens to be eroded. However for this to succeed the bond market perhaps needs to be totally fooled. If it gets wind of higher inflation then we may be back to square one as funding problems arise or panic ensues. We think that it is inevitable that inflation eventually comes back in a fiat currency world but that it is going to be much harder to create than the market thinks. But perception is often more important than reality so we need to be aware of that.

Hours later, Reuters columnist John Kemp flagged up the following headlines:

UK DMO SAYS TO HOLD 19 OUTRIGHT GILT AUCTIONS BETWEEN JUNE AND SEPT

UK DMO SAYS TO HOLD 4 MINI TENDERS AND 3 SYNDICATED OFFERINGS JUNE-SEPT

UK DMO SAYS TO SELL NEW CONVENTIONAL SEP 2019 GILT ON JULY 7

UK DMO SAYS TO AUCTION LONG CONVENTIONAL GILT IN 25 YR AREA BY SYNDICATION IN JUNE 15 WEEK

UK DMO SAYS TO SELL 30-40 YR LINKER VIA SYNDICATION IN 2ND HALF OF JULY

UK DMO SAYS PLANS TO SELL ADDITIONAL INDEX LINKED GILT VIA SYNDICATION IN SEPT, DETAILS TBA”

According to Kemp, “the DMO’s decision to start selling debt via syndications and to offer very long-term issues in index-linked form is a sign the UK government is running into resistance from investors to its huge borrowing needs.”

That reduction in investor appetite for government debt of which Deutsche’s Reid warned may well manifest sooner rather than later.

Edited by gruffydd

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http://ftalphaville.ft.com/blog/2009/05/22...vernment-bonds/

Ho ho ho.

Jim Reid at Deutsche Bank argued thus in a note issued early on Friday morning (emphasis ours):

There is not an insubstantial tail risk that we’ll all wake up one day and find that the appetite to fund the generally unparalleled peace time Government spending is suddenly reduced. We think that we are going to have this tail risk hanging over us for many quarters and even years and predicting if and when that day comes is going to prove very difficult.

The best possible (actually least bad) solution for the economy is for inflation to come back quickly enough for the huge Western World debt burdens to be eroded. However for this to succeed the bond market perhaps needs to be totally fooled. If it gets wind of higher inflation then we may be back to square one as funding problems arise or panic ensues. We think that it is inevitable that inflation eventually comes back in a fiat currency world but that it is going to be much harder to create than the market thinks. But perception is often more important than reality so we need to be aware of that.

Hours later, Reuters columnist John Kemp flagged up the following headlines:

UK DMO SAYS TO HOLD 19 OUTRIGHT GILT AUCTIONS BETWEEN JUNE AND SEPT

UK DMO SAYS TO HOLD 4 MINI TENDERS AND 3 SYNDICATED OFFERINGS JUNE-SEPT

UK DMO SAYS TO SELL NEW CONVENTIONAL SEP 2019 GILT ON JULY 7

UK DMO SAYS TO AUCTION LONG CONVENTIONAL GILT IN 25 YR AREA BY SYNDICATION IN JUNE 15 WEEK

UK DMO SAYS TO SELL 30-40 YR LINKER VIA SYNDICATION IN 2ND HALF OF JULY

UK DMO SAYS PLANS TO SELL ADDITIONAL INDEX LINKED GILT VIA SYNDICATION IN SEPT, DETAILS TBA”

According to Kemp, “the DMO’s decision to start selling debt via syndications and to offer very long-term issues in index-linked form is a sign the UK government is running into resistance from investors to its huge borrowing needs.”

That reduction in investor appetite for government debt of which Deutsche’s Reid warned may well manifest sooner rather than later.

yep

but i wouldnt want to be holding index linked gilts from this bankrupt country

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http://ftalphaville.ft.com/blog/2009/05/22...vernment-bonds/

Ho ho ho.

Jim Reid at Deutsche Bank argued thus in a note issued early on Friday morning (emphasis ours):

There is not an insubstantial tail risk that we’ll all wake up one day and find that the appetite to fund the generally unparalleled peace time Government spending is suddenly reduced. We think that we are going to have this tail risk hanging over us for many quarters and even years and predicting if and when that day comes is going to prove very difficult.

The best possible (actually least bad) solution for the economy is for inflation to come back quickly enough for the huge Western World debt burdens to be eroded. However for this to succeed the bond market perhaps needs to be totally fooled. If it gets wind of higher inflation then we may be back to square one as funding problems arise or panic ensues. We think that it is inevitable that inflation eventually comes back in a fiat currency world but that it is going to be much harder to create than the market thinks. But perception is often more important than reality so we need to be aware of that.

This is what most people don't understand. It would be great to erode the debt via inflation but unfortunately what you want to do and what actually happens can be entirely different.

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yep

but i wouldnt want to be holding index linked gilts from this bankrupt country

it's only bankrupt because the revenue-generating part of it has been decimated in favour of non-jobs and a service sector of questionable necessity.

now we have the advent of "swine flu",it would seem an appropriate time to get some in-house manufacturing back,because there will be no guarantees we can get our plastic tat from overseas.

likewise with energy.I'm all for green stuff,but this has to be coupled in a new drive to produce stuff here that is much more energy efficient....that we can sell to other countries at a profit to reduce our defecit.

we could do something like this "virtually"...if we can pocket a cut for the IP.

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When a government get the central bank to buy its own debt its time to start selling your government bonds, what the government trying to do is get investors to buy bonds then later on screw the investors making those bond worth Nominal rates could rise faster than expected inflation.

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So what is the implications of these bonds not being bought? Are these bonds linked to interest rates?

gilts are linked to rpi, if the bonds arnt purchased the government can't finance its spending and would have to take some drastic measures, in the passed they sold assets, however the asset pile is getting smaller, their main argument privatising government control assets is good it would lead to cheaper prices more competition, at the start yes it does but after a while prices creep up, profits are more important than keeping the company infrastructure in good health. Your paying more for less quality while the tax payers are still funding passed national companies.

Edited by crash2006

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In short, we're buggered!

and rates will rise rapidly, and funding will dry up and houses will end up 70% down from peak....

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http://www.smartmoney.com/Investing/Bonds/...arket-Revealed/

Now here's where it gets tricky. The Federal Reserve can see what's happening to Treasury yields, and it doesn't like it one bit. With short-term interest rates already at zero, all the Fed can to now to help the economy start growing again is the keep long term rates low. That's why the Fed is buying $300 billion of Treasury bonds in those auctions. As yields move higher despite the Fed's buying, the Fed is going to have no choice but to buy even more.

But that leads to trouble. Because when the Fed buys more, it has to print money to do it. That means even more inflation. And that means yields will need to move higher still, caused by the Fed's very attempt to keep them from rising. It's a classic vicious cycle.

Famed investor George Soros calls that particular kind of vicious cycle “reflexivity.” It happens when events in the financial markets (bonds) influence the real world (inflation), and that in turn affects the financial markets all over again, which then affect the real word all over again (and so on and so on).

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In short, we're buggered!

While factually accurate, I fear the wording you have used to describe the situation might prove to "old world" for the next generation. Esp those who are not "batty boys".

Might I suggest you refer to the conclusions I have drawn in my earlier musings, namely....

we is fukd innit

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Well one way governments could have avoided this problem was by not bailing out the rotten financial system that put us into this mess in the first place.Most of this 'unprecedented public debt' did not exist two years ago. It has been created to bail out Wall Strret and the City. Given the populace fury at the MPs expenses scandal (pretty small beer compared with the rampant corruption in the banking industry) I think this is going to be one crisis that they are not going to be able to smooth over with another series of the X Factor. As always in the run up to revolutions the more that people try to prop up the status quo the more likely they make it that the established order is going to be overthrown.

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Given the populace fury at the MPs expenses scandal (pretty small beer compared with the rampant corruption in the banking industry)

The damage is small beer in financial terms but the revelation that MPs are just as crooked as the corrupt bankers and the extent of the crookedness is a shattering revelation for the general populace.

Edited by billybong

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The damage is small beer in financial terms but the revelation that MPs are just as crooked as the corrupt bankers and the extent of the crookedness is a shattering revelation for the general populace.

All part of the same issue

http://www.nakedcapitalism.com/2009/05/mar...in-finance.html

We can not fix the problems in the financial sector because the politicians wont or cant address them.

In the end their negligence and the greed of the banking sector will kill London as a financial sector.

It will just join the long list of failed British industries.

Edited by rembrandt

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Guest KingCharles1st
Might I suggest you refer to the conclusions I have drawn in my earlier musings, namely....

we is fukd innit

U iz fukd mate- we iz all fukd- innit

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and rates will rise rapidly, and funding will dry up and houses will end up 70% down from peak....

yup, then all those suckered into a tracker will be fooked. They forget that mortgages are for 25 years, not 1-2.

I have spoken to so many telling me that they are £200 per month better off now.

oh dear. :lol:

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All part of the same issue

http://www.nakedcapitalism.com/2009/05/mar...in-finance.html

We can not fix the problems in the financial sector because the politicians wont or cant address them.

In the end their negligence and the greed of the banking sector will kill London as a financial sector.

It will just join the long list of failed British industries.

It is indeed all part of the same issue but even if the financial cost of MPs crookedness is relatively small compared to the bankers their (MPs) crookedness has a disproportionally huge impact as crookedness of MPs is so directly anti-democratic.

Wolf pillories a report produced by some leading lights of the UK's banking industry. Its main failing, as Wolf points out, is that the industry has already captured Alistair Darling, chancellor of the exchequer, who sponsored the effort and sat on the committee.

Shows how intertwined the whole crooked system is. It seems to be a pure feedback loop of crookedness.

Other established friends of the MPs including archbishops are now coming out and saying things like "humiliation" of MPs should stop as it's detrimental to democracy and of course missing the point that crooked MPs lead directly to the erosion and destruction of democracy as demonstrated by all the erosions of peoples democratic freedoms in recent years.

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