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U.k. Increases Planned 25-year Gilt Sale After Bids Exceed £10 Billion


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http://www.bloomberg.com/apps/news?pid=206...id=aGT5p5yR.doA

June 16 (Bloomberg) -- Britain sold a greater-than-expected 7 billion pounds ($11.5 billion) of 25-year gilts after receiving more than 10 billion pounds in bids, bankers said.

The debt will be priced to yield 11 basis points more than the 4.25 percent gilt maturing in 2032, used as a benchmark for the security, the bankers managing the sale said. The amount exceeded the 3 billion pounds to 5 billion pounds the Debt Management Office estimated yesterday would be raised.

The yield was revised down from the earlier range of 12 basis points to 15 basis points bankers indicated earlier because of the increased demand.

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can someone add to gilt thread and ask Free Trader?

He may be too busy buying gilts to give you an answer ;)

Joking apart, it suggests the market's view of UK prospects is improving - witness the recent uptick in the £.

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It means that the interest rate on a 25 year fixed rate loan to the government is 4.36%, and lots of people are willing to lend at that rate.

Is the interest on a gilt loan paid over the 25 years, or as a lump sum at the end of the 25 years ?

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It means that the interest rate on a 25 year fixed rate loan to the government is 4.36%, and lots of people are willing to lend at that rate.

Actually not.

The prevailing yield on 25 year 4.25% gilts is c.4.6%, so the price implies c.4.7%.

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Dude, I can't think of many 25-year zero coupon bonds around :rolleyes:

Many thanks, VWYF. Very kind of you.

Is anyone else able to answer in a way that will actually enlighten me ?

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Actually not.

The prevailing yield on 25 year 4.25% gilts is c.4.6%, so the price implies c.4.7%.

Nice - and what does that suggest a sensible mortgage rate for the average UK pleb should be?

(Here's a hint - it's not 0.5%)

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Is the interest on a gilt loan paid over the 25 years, or as a lump sum at the end of the 25 years ?

Gilts pay through their life, and then return the face value at the end.

In this case they pay 4.25% on nominal face value.

As the prevailing yield is slightly higher than nominal, it means the price is a little below 100p in the £, so if you bought the gilt for 95p, you would receive 4.25p per year, plus 100p in 25 years.

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The interest (or "coupon") is paid every six months, then you get the capital back after 25 years.

Splendid.

Thank you, N.

(It was material to me as I opted for a gilt-based supplementary pension

rather than an equity based one.)

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And in 2032 how will we be paying the gilts back?

Will we be issuing new gilts to repay the existing debt?

Won't a few years of high inflation solve that problem? But then I guess if everyone purchasing said gilts thought high inflation was going to occur they would be requiring higher yields? And then we were back to the inflation / deflation debate! Around and around and I still dont know the answer :blink:

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And in 2032 how will we be paying the gilts back?

Will we be issuing new gilts to repay the existing debt?

Some of us will be dead then. Sod the kids, sod the grandkids-let's all party right now. Might as well-it's official Labour policy-always has been since I was a nipper.

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Come on, someone help us here.

What does it all mean ?

Depends who is buying the bonds. You can bet, as I've predicted before, that the Govt would do this again AND buying their own debt. Why?

Because we aren't out of recession yet and doing this will keep interest rates low. Contrary to popular belief Brown and King can keep rates low for an extended period of time and this is how they are doing it.

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Depends who is buying the bonds. You can bet, as I've predicted before, that the Govt would do this again AND buying their own debt. Why?

Because we aren't out of recession yet and doing this will keep interest rates low. Contrary to popular belief Brown and King can keep rates low for an extended period of time and this is how they are doing it.

Really?

Are you sure that it can be done? And who are getting these low rates? Mortgage rates are raising again.

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Really?

Are you sure that it can be done? And who are getting these low rates? Mortgage rates are raising again.

People on trackers will get the direct benefit. This isn't aimed at them though.

If the BoE didn't do this banks would be making rates a lot higher. Notice how this comes out straight after banks start to raise rates?

Brown will do ANYTHING to keep rates low and keep the equity markets flowing.

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Is the interest on a gilt loan paid over the 25 years, or as a lump sum at the end of the 25 years ?

You pay £98.19 now, get £4.25 per year for the next 25 years, and a lump sum of £100 after 25 years.

Edited by jonb
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Nice - and what does that suggest a sensible mortgage rate for the average UK pleb should be?

(Here's a hint - it's not 0.5%)

FWIW:

http://www.creditaction.org.uk/assets/PDF/...9/june-2009.pdf

The average Mortgage Interest rate has dropped to 3.62%.

The average interest rate on credit card lending is currently 17.74%, which is ~ 17.25% above base rate (0.5%).

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