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We Going To See 10Y Gilts @ 3% Today?


spyguy

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HOLA444

Music to my ears. Interest rate rises please!

06 Dec 13 3.0812 09 Dec 13 3.1028 10 Dec 13 3.0709 11 Dec 13 3.0638 12 Dec 13 3.0996 13 Dec 13 3.0957 16 Dec 13 3.0772 17 Dec 13 3.0755 18 Dec 13 3.1177

Be interesting to hear FT's views on what's led them higher.

Edited by Sancho Panza
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06 Dec 13 3.0812 09 Dec 13 3.1028 10 Dec 13 3.0709 11 Dec 13 3.0638 12 Dec 13 3.0996 13 Dec 13 3.0957 16 Dec 13 3.0772 17 Dec 13 3.0755 18 Dec 13 3.1177

Be interesting to hear FT's views on what's led them higher.

I'm suspicious of the interpolated 10-year yield in the BoE database at present which is why I didn't highlight it in the gilts thread when it went above 3%.

Note how the yield jumped 15 basis points between 5th and 6th of December. I don't recall anything happening to the UK yield curve that day that would warrant a spike like that.

Taking the yields of the three closest gilts to 10 years on the 5th Dec:

Treasury 2022: 2.746%

Treasury 2023: 2.915% (<-- this is the current benchmark 10-year gilt)

Treasury 2025: 3.049%

Interpolated yield in BoE database: 2.929% (seems reasonable)

And for the 6th Dec:

Treasury 2022: 2.721%

Treasury 2023: 2.893%

Treasury 2025: 3.030%

Interpolated yield in BoE database: 3.081% (WTF??)

I don't really understand what happened. It looks like something broke.

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I'm suspicious of the interpolated 10-year yield in the BoE database at present which is why I didn't highlight it in the gilts thread when it went above 3%.

Note how the yield jumped 15 basis points between 5th and 6th of December. I don't recall anything happening to the UK yield curve that day that would warrant a spike like that.

Taking the yields of the three closest gilts to 10 years on the 5th Dec:

Treasury 2022: 2.746%

Treasury 2023: 2.915% (<-- this is the current benchmark 10-year gilt)

Treasury 2025: 3.049%

Interpolated yield in BoE database: 2.929% (seems reasonable)

And for the 6th Dec:

Treasury 2022: 2.721%

Treasury 2023: 2.893%

Treasury 2025: 3.030%

Interpolated yield in BoE database: 3.081% (WTF??)

I don't really understand what happened. It looks like something broke.

The whole system?

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I'm suspicious of the interpolated 10-year yield in the BoE database at present which is why I didn't highlight it in the gilts thread when it went above 3%.

Note how the yield jumped 15 basis points between 5th and 6th of December. I don't recall anything happening to the UK yield curve that day that would warrant a spike like that.

I don't really understand what happened. It looks like something broke.

Thanks for the explanation FT.It did seem a little odd that the interpolated yield was so far out from the ten yr generic that Bloomberg quotes.Being the innocent I am,I took it for granted that the BoE wouldn't get sucha major benchmark that wrong.Live and learn.

Edited by Sancho Panza
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Just as a matter of interest. What would the 10 year bond yield have to be before you would buy them?

for me they would have to be 3.65---3.75%

7 or 8%

Seriously, bond returns get slaughtered by inflation and you get taxed on them so they would have to hit those levels, so giving a potential for short term capital gains, before I'd even look at them twice.

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7 or 8%

Seriously, bond returns get slaughtered by inflation and you get taxed on them so they would have to hit those levels, so giving a potential for short term capital gains, before I'd even look at them twice.

Bonds used to be OK when you'd buy ones with a couple of years left below par and hold till maturity, folding any income into a capital gain.

The UK definitely does not have 100m+ of Mrs Watanabe's, helping funding the deficit.

Back to the topic, the yield just missed 3%

Imagine a future where of yields at 7%, government debt of ~100% GDP

Assume a (political) maximum government spend of 40% (big assume, its 53% at the mo).

Eventually, that would be 25% of government spend on debt interest.

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Bonds used to be OK when you'd buy ones with a couple of years left below par and hold till maturity, folding any income into a capital gain.

The UK definitely does not have 100m+ of Mrs Watanabe's, helping funding the deficit.

Back to the topic, the yield just missed 3%

Imagine a future where of yields at 7%, government debt of ~100% GDP

Assume a (political) maximum government spend of 40% (big assume, its 53% at the mo).

Eventually, that would be 25% of government spend on debt interest.

I'm sure I heard the Japanese spend 25% of the budget on interest at present rates (probably a Kyle Bass presentation)

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I'm sure I heard the Japanese spend 25% of the budget on interest at present rates (probably a Kyle Bass presentation)

They've just drafted next year's budget and estimate spending 24.3% of the budget on debt interest in FY2014, while 43% of the budget is raised via bond sales.

Of course, they also expect the economy to start growing at >2% so the numbers need to be taken with a good pinch of salt.

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Bonds used to be OK when you'd buy ones with a couple of years left below par and hold till maturity, folding any income into a capital gain.

The UK definitely does not have 100m+ of Mrs Watanabe's, helping funding the deficit.

Back to the topic, the yield just missed 3%

Imagine a future where of yields at 7%, government debt of ~100% GDP

Assume a (political) maximum government spend of 40% (big assume, its 53% at the mo).

Eventually, that would be 25% of government spend on debt interest.

BoE would buy up more long dated gilts, and just recycle int. it to the govt. as per now.

Be good for pension funds, savers, annuities etc.....

But let's face it, why would rates be 7%? There's no need for it.

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But let's face it, why would rates be 7%? There's no need for it.

Really? Tell me more...

Clapped out nation with a massive current account deficit, very high levels of private debt and public debt, hugely over reliant on a parasitic financial sector at the heart of which are two state owned zombie banks, sustained only by massive intervention by the central bank. Surely there is no danger of soft default via the monetisation of the debt...

Or, do you mean that there is no danger of the market being allowed do discover the market discovered yield for this debt in the absence of the Fed buying £85bn $75bn a month...

Or is your argument that in the absence inflation the low yields are justified? I guess it depends on exactly which price you have in mind before you can decide whether or not there is inflation. If I was trying to buy a decent house in London I might be inclined to the view that there was enough inflation to justify a 7% interest rate.

It's one thing to accept that monetary policy has taken control of rates for the time being. It's another thing to think about what rate is needed, and yet another thing to consider which problem you are attempting to fix by lowering or raising rates.

As to where rates should be, or need to be, we'll find out soon enough.

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  • 2 months later...
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<nope this linkfailed.> UK bond yieldson FT.com

Hope the links works.

Short time frame yields going up.

Longer time frame too.

Interesting to see the bond market pan out.

The Bill vs. Mohamed spat at Pimco is only a side show.

Edited by spyguy
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<nope this linkfailed.> UK bond yieldson FT.com

Hope the links works.

Short time frame yields going up.

Longer time frame too.

Interesting to see the bond market pan out.

The Bill vs. Mohamed spat at Pimco is only a side show.

this works

http://www.bloomberg.com/quote/GUKG2:IND

http://www.bloomberg.com/quote/GUKG5:IND

http://www.bloomberg.com/quote/GUKG10:IND

highest in a long time, yields going up.

will be interesting to see the ISA rates for next year

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this works

http://www.bloomberg.com/quote/GUKG2:IND

http://www.bloomberg.com/quote/GUKG5:IND

http://www.bloomberg.com/quote/GUKG10:IND

highest in a long time, yields going up.

will be interesting to see the ISA rates for next year

The FT chart shows yields across the different terms.

Its interesting ast it hsows short dated gilts jumping, long dated (>10) jumping but 10y gilds staying around the same.

A more cynical person than me wouldthink someone is pouring lots of money in to game the market.

Hope the BoE charges them with market manipulation.

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