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gruffydd

Brown Forced Into Record £65bn Gilts Spree

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What are the steps from issuing Gilts that eventually lead to higher interest rates?

Who are the intermediaries and what is the usual timespan?

Edited by Starcrossed

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There's a nice article by James Ferguson in this week's Moneyweek, 25th November.

If goverments spend way beyond their revenues,the shortfall has to be borrowed.Goverments borrow by selling Gilts, but an increase in the supply of bonds for any given demand requires a higher coupon(effectively a higher interest rate).

That's one of the reasons why interest rates have a nasty habit of suddenly shooting up when you least expect it.

Looks like part of the borrowing is to roll over existing debt, but I have a sneaking suspicion that much of it will be used to fund the labour spending machine.

Maybe DrBubb has a better idea on the timing.

Edited by BandWagon

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What are the steps from issuing Gilts that eventually lead to higher interest rates?

Who are the intermediaries and what is the usual timespan?

Issuing gilts does not have an effect on IR. However, this news may weaken the £, increasing inflation and putting pressure on the bank to raise rates. Or is that bo11ox?

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Issuing gilts does not have an effect on IR. However, this news may weaken the £, increasing inflation and putting pressure on the bank to raise rates. Or is that bo11ox?

Hi,

Often foreign investors and foreign government are the major buyers of sterling gilts. And in order to be competitive with other foreign governments who also issue their own forms of debt onto the international market, to domestic investors in this country also, the government will need to offer a competitive return. Indirectly, you can pretty much factor in an interest rate rise sometime over the coming year given the pound's weakening position in the misdt of such a large issue of debt at a time other nations are increasing their own rates.

Boomer

Edited by boom_and_bust

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Issuing gilts does not have an effect on IR

You are wrong about that. Sure, issuing gilts has no effect on the short-term money market repo rate targeted by the Bank of England, but like any other central bank they can only really be said to have meaningful "control" of the short end of the yield curve. The market sets long-term interest rates, and these are largely set by the rate of return on sovereign government debt. Ergo, higher coupons on government debt equate to higher market interest rates in the long run.

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I know the bloke who's the civil servant who is charge of the gilt-issuing department. And a lovely chap he is too. I'll see if I can e-mail him tomorrow and get some quick answers, but he is a busy chap.

Seriously, I do know him. He plays a mean bass guitar, too.

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I know the bloke who's the civil servant who is charge of the gilt-issuing department. And a lovely chap he is too. I'll see if I can e-mail him tomorrow and get some quick answers, but he is a busy chap.

Seriously, I do know him. He plays a mean bass guitar, too.

Its not Lemmy in his day job is it

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Gordon Brown, the chancellor, is on course to issue a record £65bn of gilts next year, smashing the previous record set by Norman Lamont 12 years ago after the Conservatives lost control of the public finances.

Don;t know about anyone else but I like the inferance here.

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You used to be able to buy gilts from National Savings, from £100 and up.

Then it was changed to the Bank of England.

Then Labour made them independent.....and now it's the Debt Management Office, presumably not as independent.

Presumably with loads of supply, their prices will fall. When bond prices fall, their yield goes up - (their interest rate).

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  • 302 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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