Monday, October 20, 2008

Where’s the money coming from?

UK government in borrowing record

No surprise that the govt has already borrowed as much this year as last, but a look at the DMO gilt auction calendar shows a rapid fire of new gilt auctions coming up. Who has the cash to buy these now? - will the supply swamp the demand?

Posted by uncle tom @ 01:13 PM (707 views)
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5 thoughts on “Where’s the money coming from?

  • In resply to your question: From NR and NS&I depositors possibly. Can anyone find out how much has been transferred to these since the run on banks began.

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  • If the supply swamps the demand then will this then will the attractiveness of the gilt be enhanced by a more attractive rate and thus increase the demand?
    If the rate becomes very attractive then will this mean people exiting equities in favour of gilts. That could be quite nasty.

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  • Hyperinflation here we come.

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  • If the supply exceeds the demand, then gilt yields will rise until sufficient funds are attracted.

    However, that will then de-value existing gilts (especially the longer dated ones), thereby encouraging people to sell gilts in favour of equities.

    This will push gilt yields still higher, creating a vicious circle. High gilt yields will then lever up bank rate, and with it, interest rates.

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  • Dr Ray,

    I don’t have the exact numbers for NS&I depositors, but I think we talking about a borrowing requirement that is at least an order of magnitude greater.

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