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Uk Wants To Borrow On 100-Year Low Interest Bonds


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I could go if I wanted whereas they can't leave

That's the point.

And when did I say I wanted a big state?

I consistently say we need and are going to get a much smaller state.

:blink:

So why aren't you off to one of those low tax third world states you mentioned?

Edited by Traktion
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So, no matter how actuarial your spreadsheet do you REALLY want to receive 3.9% for a century of risk?

Let's say you're Trustee of a pension scheme that has to provide a pension for someone who is currently age 25 (let's say for sake of argument it's a widow's pension for the wife of an employee who just died).

By the time this widow dies she could easily be aged 95.

So you need to invest in something that is going to pay up every year for 70 years, including allowing for pension increases in the mean time.

What are you going to choose?

Whatever you pick, you have the best part of a century of risk to deal with.

Edited by scottbeard
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http://blogs.telegraph.co.uk/finance/jeremywarner/100015543/the-conceit-of-osbornes-100-year-bond/

The Government's determination to plunder the nation's savings on disadvantageous terms is quite at odds with its ambitions for economic recovery led by private sector investment and growth. Ripping off the public is no way to solve the nation's problems.

I also imagine that when the war bonds were issued a lot of people didn't realise the full long term implications of what they were buying into (outright destruction of their capital etc) and were persuaded they could be value.

Whether that would work these days is quite another matter.

That's not to say that they won't be forced to invest through their savings funds and pension funds etc - unfortunately whether individuals like that or not.

Edited by billybong
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Walt Disney issued a 100 year bond in 2006. It is good to see that a "Mickey Mouse" economy is contemplating the same thing in 2012.

I seem to recall the Murdoch empire has some too. Nice to know the UK goverment wishes to emulate such paragons of virtue

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As for the BoE and QE - they should only buy short term bonds because any bonds that expire while held by the BoE don't have to be repaid, it's magic money!

As part of maintaining the illusion that QE isn't in fact a desperate act of monetising debt, when the bonds mature they WILL have to be redeemed.

It's just that any payment to the BoE would simply be deducted off the BoEs balance sheet and effectively would mean that the money paid was taken out of circulation. It would be money destruction. So what will happen is that the equivalent amount of new Gilts will just be repurchased on the QE programme (to replace the ones that matured). This won't count as an expansion of QE, just maintaining it at the current level.

These 100-year Long term bonds are what they want to buy with QE. No-one else in their right mind would want them (except maybe organisations that are effectively forced by fiscal regulations to hold large amounts of Gilts). Once the fresh printed money is in circulation it's going to be a hundred years before anything needs done about it and by that time inflation will have eroded the principle debt obligation away, even if anyone cares whether they are redeemed or not.

I'd imagine we'll see about the value of each years deficit being issued in these con-job bonds every year, to be QE'd into the far away future. How long the currency will hold up with the authorities printing the difference between income and expenditure remains to be seen ...

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Let's say you're Trustee of a pension scheme that has to provide a pension for someone who is currently age 25 (let's say for sake of argument it's a widow's pension for the wife of an employee who just died).

By the time this widow dies she could easily be aged 95.

So you need to invest in something that is going to pay up every year for 70 years, including allowing for pension increases in the mean time.

What are you going to choose?

Whatever you pick, you have the best part of a century of risk to deal with.

I think that realistically there would be huge demand for index-linked 30-50 year bonds, but the desire for 100 year bonds is going to be absolutely minimal unless it is a great way to raise a bond portfolio's weighted average duration.

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I think that realistically there would be huge demand for index-linked 30-50 year bonds, but the desire for 100 year bonds is going to be absolutely minimal unless it is a great way to raise a bond portfolio's weighted average duration.

Agreed. Given how pension funds would bite their hand off for index-linked 50 year bonds, what do we deduce that they want to issue fixed 100 year bonds instead...?

(*cough* inflating debt away)

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As part of maintaining the illusion that QE isn't in fact a desperate act of monetising debt, when the bonds mature they WILL have to be redeemed.

It's just that any payment to the BoE would simply be deducted off the BoEs balance sheet and effectively would mean that the money paid was taken out of circulation. It would be money destruction. So what will happen is that the equivalent amount of new Gilts will just be repurchased on the QE programme (to replace the ones that matured). This won't count as an expansion of QE, just maintaining it at the current level.

These 100-year Long term bonds are what they want to buy with QE. No-one else in their right mind would want them (except maybe organisations that are effectively forced by fiscal regulations to hold large amounts of Gilts). Once the fresh printed money is in circulation it's going to be a hundred years before anything needs done about it and by that time inflation will have eroded the principle debt obligation away, even if anyone cares whether they are redeemed or not.

I'd imagine we'll see about the value of each years deficit being issued in these con-job bonds every year, to be QE'd into the far away future. How long the currency will hold up with the authorities printing the difference between income and expenditure remains to be seen ...

If they were going to buy all these debts themselves, why would they bother risking spooking the market with this new "innovative" financial product ? Surely the 30 and 50 year bonds would do the same job ?

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Noticed US treasuries on the rise, looks like they may be on the point of breakout.

We are in a period of total manipulation of the markets - investments are not worth investing in, money is not worth what it was yesterday, cheap money is polluting ever more market sectors raising risk and the link between risk and return has been broken.

Bravo the this and the last government and the disgraceful action of the central bank during both their tenures - they have meddledd and medlled and bust this system.

No blakc swan is needed to break it all apart again - with worse consequences had they not meddled at all.

10 year gilts up again. Gone up about 30 bps since this announcement.

Probably just noise. Still well below levels from last year.

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If they issue 100 years bonds they will probably flop. And it's a big IF. QE purchases off the secondary market so private bond buyers would have to buy them first, and why would anyone want to lock in the current low interest rates? I reckon they're setting themselves up for an auction failure.

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There is a big irony here and it is pointed out by the article linked too below. Whilst politicians waffle about 100 year gilts we are seeing falls in gilt prices and rises in gilt yields...

UK Gilt prices are falling and yields are rising

I pointed out yesterday that US government bond yields had risen recently and that this was posing a challnge to the latest form of monetary easing which is called Operation Twist. This was supposed to reduce longer term interest-rates or bond yields and for a while it did. However the rise in yields has continued and the US ten-year yield has risen to 2.33% which is a sharp rise as it was briefly below 2% as recently as Monday afternoon.

The UK has not avoided a world wide rise in yields driven mostly by the US move. The ten -year gilt yield has now hit 2.40% and in price terms it has fallen from 117 as of late Monday to 114.15 as I type this. At the same time the Bank of England was buying some £3 billion of UK gilts as part of its Quantitative Easing programme but as you can see by the price moves it did not help much.

If this turns out to be a general reversal of the trend for lower bond yields then several problems are posed. So far we have risen just under 0.5% in yield terms from the lows of mid-January 2012.

1. Variable mortgage rates were rising anyway and may now be joined by a rise in fixed rate mortgages.

2. The Bank of England will be making losses on it most recent gilt purchases and further falls in price could push it towards a loss overall.

3. It will be more expensive going forwards to finance the UK’s national debt.

4. The only potential gain is for savers who may see some better deals offered.

Sometimes particular events turn out to be a signal of a change and I wonder if the potential hubris surrounding the discussion of a new 100 year (or even a perpetual..) gilt did actually signify a change in the way that stop-loss orders often do? We will have to wait and see as bond yields had fallen substantially from the levels seen even a year ago when our ten-year yield was just over 1% higher.

http://www.mindfulmoney.co.uk/wp/shaun-richards/did-the-recent-move-higher-in-uk-bond-yields-trigger-the-switch-to-negative-outlook-by-fitch-ratings-agency/

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Some points about indebting future generations:

Firstly, if we "pass this debt on to our kids", whats to stop them doing the same, and then the next generation after that, and so on?

Secondly, the debt assuming it is mostly domestically owned, simply represents a distributional factor within our own country. So the 'debt' we all owe in this terrible future, is offset by a similar amount of assets.

Thirdly, to the point about 'who would lend money for 100 years?'. No one buying such a bond is in fact doing that, assuming a liquid market exists in which they could sell the same bond tomorrow.

Just a few things to ponder.

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Some points about indebting future generations:

Firstly, if we "pass this debt on to our kids", whats to stop them doing the same, and then the next generation after that, and so on?

Secondly, the debt assuming it is mostly domestically owned, simply represents a distributional factor within our own country. So the 'debt' we all owe in this terrible future, is offset by a similar amount of assets.

Thirdly, to the point about 'who would lend money for 100 years?'. No one buying such a bond is in fact doing that, assuming a liquid market exists in which they could sell the same bond tomorrow.

Just a few things to ponder.

Well exactly - the attempt to transfer the obligation to future generations will just result in raging inflation which will wipe out the debt plus the 'savings' of the previous generation.

But I thought you were the guy telling us we are going to get deflation

So you seem to be contradicting yourself here.

:blink:

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There was a good section/analysis of 100 year Gilts in the Guardian. I found the bit quoted belwo particularly helpful,after all who would buy them?

So who would be queuing up to buy 100-year gilts? Shaun Richards, an independent economist, has warned that the Treasury needs to find buyers with a sufficiently gloomy outlook. Are there enough Eeyores out there? He writes:

To buy at such levels for such a long time you either have a very pessimistic view of the UK economic outlook probably combined with a very optimistic outlook on UK inflation, or you do not know what you are doing! Oh and the problem with an economic view that is pessimistic is will there be any money to pay you in 100 years time? The current economic outlook looks rather stagflationary and that is a long way from the best outlook for a fixed coupon bond holder.

Several readers have touched on the issue of quantitative easing, under which the Bank of England is buying up £325bn of government debt. This has pushed up prices, and thus sent bond yields down.

Richards predicts that the Bank of England could potentially buy future 100-year bonds under its QE programme, as it is already acquiring 50-year gilts. That could also lead to problems ahead, if bond prices fall.

Losses on a 2060 maturity bond will take a lot of hiding for a very long time, does Mervyn King have a son or daughter ready to step into the fold? Oh and do they have any kids as well?

http://www.guardian.co.uk/politics/reality-check-with-polly-curtis/2012/mar/14/budget-2012-100-year-bonds#block-4

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Aha.

Well, that tells us what interest rate the market currently accepts on perpetual debt. So unless the new crap is so much as to sink it, we have an answer.

On the other hand, presumably the old stuff is eroded to peanuts by inflation, and issuing anything more than a token amount at today's values would dwarf them all.

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Some points about indebting future generations:

Firstly, if we "pass this debt on to our kids", whats to stop them doing the same, and then the next generation after that, and so on?

Secondly, the debt assuming it is mostly domestically owned, simply represents a distributional factor within our own country. So the 'debt' we all owe in this terrible future, is offset by a similar amount of assets.

Thirdly, to the point about 'who would lend money for 100 years?'. No one buying such a bond is in fact doing that, assuming a liquid market exists in which they could sell the same bond tomorrow.

Just a few things to ponder.

For your first point, two wrongs don't make a right. There will also only be a benefit to the future generations, if they can lengthen the bond maturity date further for their bonds. If they can't, then it is a benefit for today, paid for by others tomorrow.

For your second point, treating the unborn as 'assets' which can be traded is getting dangerously close to slavery*. Saying that the 'owners' of such assets reside within the same country, doesn't really make it any more ethical.

For you third point, I agree.

* Ofc, they could still leave the country, but that isn't an appealing or realistic option for many.

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  • 433 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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