Saturday, January 31, 2009
Gilt auction failure
If people with money thought that the UK gilt auctions would succeed, then there would be no reason for sterling to be as low as it is now, for the simple reason that foreign buyers must buy sterling to buy UK gilts. Also, the amount issued for each of the next few years is 150 billion a year, which is roughly the same as our trade deficit. This goes some way to explaining why the gilt market is being overhauled to allow more access to pension funds, the "core of our investor base" for gilts. So a) altering the structures to allow/force more domestic purchases b) low sterling. From that, there won't be any foreign buyers of gov. debt, only UK savers, in which case there is no real wealth behind the savings guarantees and -the gov. plan is simply that there will be no defaults-.!?