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Willy Weasel

Bond Dealers Refuse To Play 'russian Roulette'

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http://www.bloomberg.com/apps/news?pid=206...id=a4sov75Ek..s

The Bond dealers are shying away from UK debt. As the BoE ploughs on with QE it's a case of "Sold to you, Merv!".

Once QE stops we will have a full blown bond crisis.

Anyone like to guess where interest rates will be headed when that happens?

My guess is -0.5% :P

Don't worry I'm sure Ponzi Brown will instruct Mystic Merv to keep buying. He's found the magic printing press that won't be given up easy.

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It seems there is no real choice but to fire up another £150 billion of QE, after the first dose runs out. The bond buyers face a double problem. If the government pulls QE, yields would rise horrifically. If the government keeps up QE the bond buyers risk having the value of their bonds inflated away over time.

These big bond fund managers are asking the question, how will the wind down of QE work. My opinion is QE is a last ditch desperation move by the state to keep the game going. There is no wind down for QE.. the only thing that comes after QE is more QE. It seems the bond fund managers haven't figured that out yet... and still thinking this is going to blow over and things will return to normal.

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I think the govt will bottle it and cut back spending before a bond strike.

I have some faith in Sir Humphrey to sacrifice the politicians, realising that high interest rates will be more dangerous than unemployed public servants.

If interest rates rise significantly, the economy is dead, it can't support the payments on the debt load and there is no possible positive spin. If public spending is cut back, that can be spun as good for the country (fiscally reponsible, doing the right thing, blah blah) and gives an appearance that the govt is in control rather than having events forced upon them.

I wonder if Sir Humphrey is able to get Brown out. I bet there is a file of embarrasing information just waiting to be leaked.

VMR.

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Foreign investors cut their gilt holdings since the start of quantitative easing, selling 10.9 billion pounds of the securities in April, the most since at least 1982, according to central bank data. They sold 960 million pounds in May.

10-fold increase in selling in one month.

Mervyn "collapso" King, head of the central bank during the worst of the lending excesses, still head of the central bank which switches its low rate destructive policy into overdrive via even lower rates and quantitative shitting.

Anybody betting on a sound end from the actions of the meddlers is not looking at all the evidence to the contrary.

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Quote :

“The Bank of England will want to keep some ammunition for a worst-case scenario, so there’s certainly a high degree of probability that they will extend the quantitative easing program,†said Brian O’Reilly, head of research at UBS Wealth Management in London. “We could very well see the program extended to 200 billion pounds in total.â€

QE will almost certainly have to continue - the BoE will more than likely announce that it will use its last £25 billion out of the £150 billion initial program today.

After that I think the only option is for them to continue QE, if they dont demand for our gilts will tail off as investors switch to US treasuries or German/Western European debt.

I wouldn't be surpised to see QE continued for another £75-£100 billion. That should cover most of this years government spending deficit. Monetizing the debt anyone?

On the gilts thread I did say that I thought interest rates may have to go up about the time of the pre-budget statement in Oct/Nov but I now think thats unlikely. The higher probability now is more QE and keeping rates low until Dec/Jan to not harm the "recovery".

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http://www.bloomberg.com/apps/news?pid=206...id=a4sov75Ek..s

The Bond dealers are shying away from UK debt. As the BoE ploughs on with QE it's a case of "Sold to you, Merv!".

Once QE stops we will have a full blown bond crisis.

Anyone like to guess where interest rates will be headed when that happens?

Sorry, I don't get the bit about "when QE stops." Surely now we are speeding along on the QE train, there will never be a point where the government feels that it is safe to jump off. :(

Good grief. :rolleyes: I made a prediction to a friend earlier this year that the UK would have a bond crisis this year. I may be wrong. It might not be until 2010...but then I tend to be an optimist...

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The government cannot cut back public spending now. To go from the current >£200 billion deficit to a more managable £50 billion deficit would require 150 billion in cuts.

In my thread on what this would mean I estimated it would cost 1.7 million state funded jobs, and the unemployment rate would rocket to 20%.

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The government cannot cut back public spending now. To go from the current >£200 billion deficit to a more managable £50 billion deficit would require 150 billion in cuts.

In my thread on what this would mean I estimated it would cost 1.7 million state funded jobs, and the unemployment rate would rocket to 20%.

Sounds like a good dose of sensible house keeping to me.

The Govt. is loosing its ability to make its own decisions - but this is the bit you just don't seem to understand.

At the end of the day the market will tell this Labour Govt. how much of other peoples money it can spend.

Remember when you spend your own money nobody can tell you what to spend it on. When you are spending other peoples money then you are no longer in control.

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The Govt. is loosing its ability to make its own decisions

When you are spending other peoples money then you are no longer in control.

The market will decide, bond managers know there is no end, well in sight, rates will move slowly upwards to "FIGHT INFLATION" later this year or early summer 2010, just after the nation decides? But no, QE cannot continually go on forever, it will be a balance bewteen rates upward trending, and spending cuts, taxes rising, and just generally feeling and getting poorer for the next few years?

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Quote :

“The Bank of England will want to keep some ammunition for a worst-case scenario, so there’s certainly a high degree of probability that they will extend the quantitative easing program,†said Brian O’Reilly, head of research at UBS Wealth Management in London. “We could very well see the program extended to 200 billion pounds in total.â€

QE will almost certainly have to continue - the BoE will more than likely announce that it will use its last £25 billion out of the £150 billion initial program today.

After that I think the only option is for them to continue QE, if they dont demand for our gilts will tail off as investors switch to US treasuries or German/Western European debt.

I wouldn't be surpised to see QE continued for another £75-£100 billion. That should cover most of this years government spending deficit. Monetizing the debt anyone?

On the gilts thread I did say that I thought interest rates may have to go up about the time of the pre-budget statement in Oct/Nov but I now think thats unlikely. The higher probability now is more QE and keeping rates low until Dec/Jan to not harm the "recovery".

They seem to have been QE'ing at a rate of 1bn every working day for the past few months. Surely given further falls in tax revenue due to increasing unemployement, shorter working hours (I'm doing my bit here!), increased benefits etc. they need to QE at least 30bn a month. Another 150bn more will get them through to the end of the year IF they are very lucky! Even this dire scenario would be a miracle.

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The bond buyers face a double problem. If the government pulls QE, yields would rise horrifically.

How is a yield rise a problem for bond buyers?

And anyway, WTF are the rating agencies doing? How can the UK still plausibly be AAA?

Edited by CokeSnortingTory

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How is a yield rise a problem for bond buyers?

And anyway, WTF are the rating agencies doing? How can the UK still plausibly be AAA?

Maybe the one more batch of QE will do the trick....the boxer's third knock down?

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The government cannot cut back public spending now. To go from the current >£200 billion deficit to a more managable £50 billion deficit would require 150 billion in cuts.

In my thread on what this would mean I estimated it would cost 1.7 million state funded jobs, and the unemployment rate would rocket to 20%.

You mean the government can't stop malinvesting now because that would mean lots of things that no one really wants in the first place would stop happening?

Why is that a bad thing?

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Removing the QE could only be done by either taking in taxes and literally burning/deleting the money AND/OR issuing a shedload of treasuries to mop up the cash which relies on the appetite (High IR's?) and locks the govt into having to pay interest on money it would then have to destroy/delete anyway.

NO GOVERMENT IS GOING TO DO THIS. QE MONEY WILL NOT EVER GET DESTROYED SO GET USED TO THE DOUBLING THEN TRIPLING OF BASE MONEY SUPPLY AND THE INFLATION IT WILL INEVITABLY CAUSE.

I challenge anyone here to tell me* how else they could reverse QE without taking one of the options outlined above. I am ALL EARS!

*have been waiting for someone to answer this question since QE started. "how are they going to reverse it??"

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The government cannot cut back public spending now. To go from the current >£200 billion deficit to a more managable £50 billion deficit would require 150 billion in cuts.

In my thread on what this would mean I estimated it would cost 1.7 million state funded jobs, and the unemployment rate would rocket to 20%.

What is the alternative?

VMR.

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What is the alternative?

VMR.

The alternatives are to continue with QE, leading to gilts becoming unsaleable and Gbp coming practically worthless.

Or

Increasing interest rates/yields leading to a depression.

Or a combination of cuts, QE, increased interest rates! (a smaller dosage of 3 different poisons may not be as fatal as a large dose of one!)

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Or a combination of cuts, QE, increased interest rates! (a smaller dosage of 3 different poisons may not be as fatal as a large dose of one!)

QE, foot on foot brake, not handbrake? So, they are going to slowly ease off now i would say. No more QE after the last 25bn, that should take us to the Autumn, spending cuts a given, tax rises a must, interest rates up, yes but slow as she goes. We are just going to have to accept, with rising unemployment, rising debt serviceability, we are a nation waiting to go under the knife for some painfull surgery? The average Joe thinks this is about as bad as it gets, he will be sadly awoken to the pain of the operation come next year when he is told the pain is not terminal, but will not leave for the years 2010 to 2012.

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Removing the QE could only be done by either taking in taxes and literally burning/deleting the money AND/OR issuing a shedload of treasuries to mop up the cash which relies on the appetite (High IR's?) and locks the govt into having to pay interest on money it would then have to destroy/delete anyway.

NO GOVERMENT IS GOING TO DO THIS. QE MONEY WILL NOT EVER GET DESTROYED SO GET USED TO THE DOUBLING THEN TRIPLING OF BASE MONEY SUPPLY AND THE INFLATION IT WILL INEVITABLY CAUSE.

I challenge anyone here to tell me* how else they could reverse QE without taking one of the options outlined above. I am ALL EARS!

*have been waiting for someone to answer this question since QE started. "how are they going to reverse it??"

Hoist the reserve requirements?

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Supposedly QE is not being extended. I wonder what will happen in about 3 weeks time when the current batch runs out?

Injin is suggesting that they will do it secretly! This would be a great idea as long as there are no rumours of this taking place!

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How is a yield rise a problem for bond buyers?

Because the value of the bonds they already own will fall to reflect the higher market yield.

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QE, foot on foot brake, not handbrake? So, they are going to slowly ease off now i would say. No more QE after the last 25bn, that should take us to the Autumn, spending cuts a given, tax rises a must, interest rates up, yes but slow as she goes. We are just going to have to accept, with rising unemployment, rising debt serviceability, we are a nation waiting to go under the knife for some painfull surgery? The average Joe thinks this is about as bad as it gets, he will be sadly awoken to the pain of the operation come next year when he is told the pain is not terminal, but will not leave for the years 2010 to 2012.

yep, i still spend quite a bit of time in the UK and i honestly get the impression that their is a large majority of people that think this time next year taxes will still be at the same level and the debt can still continue growing as if theres no issue. Of course once the taxes rise the economywill collapse again and the real crash will start in the UK. Its unavoidable, i think the UK is relatively lucky in that i think people with current manageable debt levels have almost 12 months left to get it under control /clear it. But i doubt very many will be forward thinking enough to do so.

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Removing the QE could only be done by either taking in taxes and literally burning/deleting the money AND/OR issuing a shedload of treasuries to mop up the cash which relies on the appetite (High IR's?) and locks the govt into having to pay interest on money it would then have to destroy/delete anyway.

NO GOVERMENT IS GOING TO DO THIS. QE MONEY WILL NOT EVER GET DESTROYED SO GET USED TO THE DOUBLING THEN TRIPLING OF BASE MONEY SUPPLY AND THE INFLATION IT WILL INEVITABLY CAUSE.

I challenge anyone here to tell me* how else they could reverse QE without taking one of the options outlined above. I am ALL EARS!

*have been waiting for someone to answer this question since QE started. "how are they going to reverse it??"

The BoE can sell the bonds it buys and delete the money it gets selling them. Although I like Alan's method better.

Edited by aa3

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QE, foot on foot brake, not handbrake? So, they are going to slowly ease off now i would say. No more QE after the last 25bn, that should take us to the Autumn, spending cuts a given, tax rises a must, interest rates up, yes but slow as she goes. We are just going to have to accept, with rising unemployment, rising debt serviceability, we are a nation waiting to go under the knife for some painfull surgery? The average Joe thinks this is about as bad as it gets, he will be sadly awoken to the pain of the operation come next year when he is told the pain is not terminal, but will not leave for the years 2010 to 2012.

Do you think we'll see any major tax rises with 'The Nutter' still PM?

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