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van hoogstraten

Declining Gilt Yields - Impact On Uk Plc

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I wonder what Dr Bubb has to say on this matter, but it seems that the low interest rate environment is providing a difficult scenario for the govenrment.

Through the FSA it has effected a ready market for its debt by insisting on a much higher precentage long term bond holding by pension funds, but returns on this asset form are now so low pension fund deficits are growing ever bigger.

What is the govenrment do - it needs higher interest rates to improve the bond return and narrow the overall pension fund deficit (its being hoisted on its own standard here), but such hikes will drive the final nail in the grossly overindebted coffin of the UK consumer driven economy.

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Guest Charlie The Tramp
What is the govenrment do - it needs higher interest rates to improve the bond return and narrow the overall pension fund deficit (its being hoisted on its own standard here), but such hikes will drive the final nail in the grossly overindebted coffin of the UK consumer driven economy.

Now, what would you do? It`s a nasty feeling walking on egg shells :D

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Very tawdry subject, but this is essentially another way of raping the pension funds again, the FSA made providers cash out of equities 2002-03 onwards at market lows, they said liabilities should be spread across 'low risk' bonds, which is very convenient when government is running massive deficits, this week lots of companies are plugging shortfalls so the protection fund doesn't whallop them with a big insurance liability, the 50 year gilt yielding less than 1%!

Create a market and somewhat limited supply and then force people to buy your stuff! Brilliant. It totally undermines the MPC too, the market ultimately determines yields and government bonds make the base rate look very generous.

Brown is very canny, he is able to do the Indian rope trick.

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Not good for the rise in business investment Crash Gordon is relying upon to take over as a growth driver from the government hiring spree (never quite sure how civil servants drive growth though) , as any spare cash is needed to meet pension fund liabilities rather than improving productive capacity.

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Another piece of the jigsaw. Bond yields are low because the cost of these assets has risen in a more risk-averse investment market.

Yesterday's piece from Reuters shows Andrew Large being very downbeat about "frothy" asset prices - you can add bonds to the property and commodity bubbles.

http://today.reuters.co.uk/news/newsArticl...ITAIN-LARGE.xml

Reading between the lines:

"From time to time, in my view, it is saying 'well, a marginally higher rate at this juncture is a price worth paying, if you like, in order to make sure that you can hold the position stable over time, which is what we need to do.'"

... Interest rates are more likely to rise than fall.

That would make putting your cash in the bank more attractive still than buying high-price/low-yield bonds.

Redwing

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That would make putting your cash in the bank more attractive still than buying high-price/low-yield bonds.

Indeed, but the FSA doesn't make us buy bonds as it does with the pension funds and their wall of money.

Like any asset bond prices are too high and do not reflect risk, me thinks there is too much liquidity in the system captin', man the printing presses!

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Like any asset bond prices are too high and do not reflect risk, me thinks there is too much liquidity in the system captin', man the printing presses!

Man the furnaces, more like. We need to dispose of around £600m of paper.

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There was a great article in the Evenin gStandard yesterday I think about solving the pensions deficit issue (caused by one GB). Companies refrain for paying dividends for a year and instead contribute it to their pension funds. They get tax relief on that as opposed to being taxed in dividend payments out. The beauty being that the money (be it dividends or payments into pension funds effectively finds it way to the same place - the pension funds (cos dividends are usually reinvested by the fund managers). This would potentially solve the deficit (10 billion now discounted over 10-20 years is more like 60 billion then), improve prospects of the company (no deficit hanging over it, no pensions regulator on its case) allow more deals etc etc. Brave action but if one or two big co's did it they could find it becomes a fashion.

Why relevant for HPC? because this would boost shares as an investment over bonds, bond yields would rise and long term interest rates would rise too (pushing up rates a bit generally and also further help imprive pensions by reducing deficits further (small rises in long temr rates massively improve deficits/pension funds due to discounting).

Who knows.

Edit: Sorry, it also said GB's tax grab from pension funds amounts to 5bn a year (45Bn total) - discounted over 20 years that is 100Bn+ - very similar to the supposed aggregate deficits....

Edited by Tempest

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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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