The 10yr gilt has reached its short term bottom

[henry the king]

3 hours ago, Joris Bohnson said:

Today the UK sold the 30-year benchmark gilt at the highest yield for a sale via syndication since records began in 2005.

 

Oh dear. Not looking good is it?

They are selling amounts comparable with during the covid era when they were borrowing billions and had the economy shut.

This is because the BoE went from net huge buyer to net huge seller.

The BoE are shrinking their balance sheet way quicker than other central banks

[henry the king]

4 hours ago, Huggy said:

Every single chance they get...

Makes a change from Thatcher and more latterly Brexit as the cause of every ill.

And no mention that a few weeks behind the BoE started active QT lol.

Amazing how much people ignore this.

QT is going to cost the government hundreds of billions and yet you don't hear it mentioned!

[NoHPCinTheUK]

Just now, henry the king said:

They are selling amounts comparable with during the covid era when they were borrowing billions and had the economy shut.

This is because the BoE went from net huge buyer to net huge seller.

The BoE are shrinking their balance sheet way quicker than other central banks

Any data available for us? 

[henry the king]

Just now, NoHPCinTheUK said:

Any data available for us? 

I remember looking at them and being shocked how much £ in gilts the markets are having to absorb.

This is obvious anyway I suppose. £100bn of QT per year is a lot. Add on the government deficit to that and you have an awful lot of money that investors need to buy which drives up yields.

What is more amazing is the BoE almost instantly went from massive buyer to massive seller.

The facts are that in 2023/24 and 2024/25 then the gilt market will have absorbed more sales than during the previous 9 years combined (which included covid). That is according to Nomura. 

[Oliver Sutton]

Another day another high.

Higher than after Kami Kwasi's budget.

[Dreamcasting]

4 minutes ago, Oliver Sutton said:

Another day another high.

Higher than after Kami Kwasi's budget.

Ah, but Lizz Truss though..... Oh wait.

[TheCountOfNowhere]

30 minutes ago, Oliver Sutton said:

Another day another high.

Higher than after Kami Kwasi's budget.

The Sunake should be removed then, right...

[scottbeard]

19 hours ago, Maghull Mike said:

I must confess i dont understand yield thing....does this mean they can't sell their debt?

It means that investors will only buy it in exchange for more interest.

The equivalent of dodgy Dave down the pub saying "lend us a tenner and I'll give you £15 on Monday" and the markets saying "hmm...I'd need £20 on Monday to be up for that risk"

[Maghull Mike]

5 minutes ago, scottbeard said:

It means that investors will only buy it in exchange for more interest.

The equivalent of dodgy Dave down the pub saying "lend us a tenner and I'll give you £15 on Monday" and the markets saying "hmm...I'd need £20 on Monday to be up for that risk"

Thanks......................UK is going to become a MEGA risk

[Roman Roady]

[Roman Roady]

i think it topped 4.43 today

[Social Justice League]

Sunak should be on his way out about now.

Liz was booted out for less but it shows us that the eleech c4nts need someone they can control, hence Sunak. 

A right wee diddy with a head too big for his shoulders.

[henry the king]

1 hour ago, Maghull Mike said:

Thanks......................UK is going to become a MEGA risk

I think the issue is just the volume. i don't think the UK is seen as a great risk in itself. Just how much is being sold due to QT is driving everything.

The BoE have done pretty well tbh. I think they will have sold roughly £250bn of the £900bn by September. 

[Roman Roady]

21 hours ago, Maghull Mike said:

I must confess i dont understand yield thing....does this mean they can't sell their debt?

My basic understanding goes like this:-

At the time of the primary auction (govt to investor), the gilt has a coupon and yield which are equal. This is basically the percentage that can be expected to be paid on maturity. The coupon stays the same though out the life of the gilt.

However there are other Gilts that have been issued in circulation already in the hands of those who invested previously. These investors are at liberty to sell their Gilts as they see fit, and these Gilts are sold in the secondary market (investor to investor).

If UK debt is seen as less attractive at any time these investors will sell. So if someone who bought £10k worth of 10yr gilts with a 3% coupon wants to sell them in a buyers market, they might have to sell at £9k. I have no experience if these figures are realistic, just choosing figures for easy arithmetic. So those 10yr Gilts still have a 3% coupon and will thus return £300 upon maturity. 300/9000 is now 3.33%. So the coupon is still 3% but the yield has now decoupled and is 3.33%.

This is why rising yields show falling Gilt prices.

Now if the UK wants to keep selling debt in the primary market, and lets face it, our standard of living depends upon this, then the coupon of any new debt now has to match the yield of 3.33%. If it doesn't, investors will just buy from the secondary market.

The process is reversed in a sellers market, the yield falls and thus the govt can get away with lower coupons.

 

I would say that the actions of the BoE ATM, i.e. sell billions of extra Gilts, are making this a buyers market!

 

The longer the term of the Gilt, the greater the risk of a default, therefore the higher the coupon/yield.

 

And thats the view from my end of the telescope.

[DarkHorseWaits-NoMore]

 

[TheCountOfNowhere]

1 hour ago, henry the king said:

I think the issue is just the volume. i don't think the UK is seen as a great risk in itself. Just how much is being sold due to QT is driving everything.

The BoE have done pretty well tbh. I think they will have sold roughly £250bn of the £900bn by September. 

Yes, they are forecast to have got rid of most of it in 2 years.

That is welcome news, they reckon their QT adds 1% to interest rates effectively due to diminished bank lending.

If that's the case then things are much worse for the debt junkies and anyone can imagine.

[shlomo]

On 4/24/2024 at 6:11 PM, NoHPCinTheUK said:

No. Not looking good. 
 

As I said the longer tail of the yield curve is going up and up and up. 
 

Good luck to all those who will have to refinance their debts in an inflationary scenario. It’s a recipe for financial ruin. 
 

We need US style mortgages now. 

What does this mean for interest rates?

[Maghull Mike]

2 minutes ago, shlomo said:

What does this mean for interest rates?

Higher.........."They" wanted a dip in rates while the had that rather annoying "Election" thing....but they cant even manage that.

Mike

[Frankie Teardrop]

The 50 year trend of falling interest rates is over.
Those who adapt to this new environment will win.
Those who cant accept the world has changed will lose.

[henry the king]

27 minutes ago, TheCountOfNowhere said:

Yes, they are forecast to have got rid of most of it in 2 years.

That is welcome news, they reckon their QT adds 1% to interest rates effectively due to diminished bank lending.

If that's the case then things are much worse for the debt junkies and anyone can imagine.

QT takes a long time to have an effect too imo

[zugzwang]

3 hours ago, TheCountOfNowhere said:

The Sunake should be removed then, right...

Let's reserve a seat for him with Rwanda Airways.

[shlomo]

10 minutes ago, zugzwang said:

Let's reserve a seat for him with Rwanda Airways.

Lol, that is the funniest comment you have ever made

[shlomo]

38 minutes ago, Frankie Teardrop said:

The 50 year trend of falling interest rates is over.
Those who adapt to this new environment will win.
Those who cant accept the world has changed will lose.

people whos fixed mortgage at low rates that have ended and now have to re-mortgage at these new higher rates are crying, so sad

Edited April 25 by shlomo

[zugzwang]

1 hour ago, Roman Roady said:

My basic understanding goes like this:-

At the time of the primary auction (govt to investor), the gilt has a coupon and yield which are equal. This is basically the percentage that can be expected to be paid on maturity. The coupon stays the same though out the life of the gilt.

However there are other Gilts that have been issued in circulation already in the hands of those who invested previously. These investors are at liberty to sell their Gilts as they see fit, and these Gilts are sold in the secondary market (investor to investor).

If UK debt is seen as less attractive at any time these investors will sell. So if someone who bought £10k worth of 10yr gilts with a 3% coupon wants to sell them in a buyers market, they might have to sell at £9k. I have no experience if these figures are realistic, just choosing figures for easy arithmetic. So those 10yr Gilts still have a 3% coupon and will thus return £300 upon maturity. 300/9000 is now 3.33%. So the coupon is still 3% but the yield has now decoupled and is 3.33%.

This is why rising yields show falling Gilt prices.

Now if the UK wants to keep selling debt in the primary market, and lets face it, our standard of living depends upon this, then the coupon of any new debt now has to match the yield of 3.33%. If it doesn't, investors will just buy from the secondary market.

The process is reversed in a sellers market, the yield falls and thus the govt can get away with lower coupons.

 

I would say that the actions of the BoE ATM, i.e. sell billions of extra Gilts, are making this a buyers market!

 

The longer the term of the Gilt, the greater the risk of a default, therefore the higher the coupon/yield.

 

And thats the view from my end of the telescope.

 

One tiny correction. On-the-run Gilts (the most recent issue) typically maintain a slight premium over off-the-run Gilts of the same duration. The generally narrower bid/ask spreads they command and the superior liquidity they offer to investors results in a smaller coupon.

[zugzwang]

16 minutes ago, shlomo said:

Lol, that is the funniest comment you have ever made