Wednesday, March 25, 2009

Gilt auction today was not completely covered

Gilt auction failure begins

Wednesday’s £1,750m auction of 4¼ per cent Treausury gilts dated 2049 failed, with a bid-to-cover ratio of 0.93. That’s the first UK conventional gilt auction failure since 1995 according to Dow Jones. So is this a sign of things to come? And is this why Bank of England governor Mervyn King was so concerned about further government spending on Tuesday?

Posted by mountain goat @ 12:09 PM (1725 views)
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11 thoughts on “Gilt auction today was not completely covered

  • mountain goat says:

    Wall Street journal reports:

    “Immediate market reaction to the results was extremely negative, with the June gilt futures contract heading sharply lower.

    At 1100 GMT, June gilts were down 1.00 on the day at 120.37, after a low of 119.45 made soon after the results were announced.

    Gilt futures have now erased all their price gains made since the Bank of England announced its quantitative easing program on March 5. ”

    BoE was the probe sent in to test the waters before the Fed announced QE. Well it looks like the answer from the market is what we expected. “We don’t want to own this debt thanks”

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  • mountain goat says:

    The reference to Mervyn Kings warning was this:

    “Mervyn King on Tuesday said the UK could not afford a second fiscal stimulus in next month’s Budget, in a rare public warning by the central bank governor. In comments that will weigh on Gordon Brown ahead of next week’s G20 summit in London, King said Britain faced “very large fiscal deficits over the next two to three years”. His concerns were echoed by the European Commission which on Tuesday gave Britain until 2013-14 to bring the budget deficit back below 3% of national income.”
    source

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  • little professor says:

    This sounds like big news. Does this mean that nobody wants to lend the UK government money by buying its bonds?

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  • BIG news.
    Bad news for the UK treasury.

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  • mountain goat says:

    I am hoping that this Gilt market failure will be the one thing that can slow down the bailout madness.

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  • bidin'matime says:

    MG – my thoughts exactly – hopefully this is a sign that the markets can provide fast enough feedback to stop a fiscal bubble replacing a housing bubble.

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  • I thought there was a massive buyer of UK Gilts out there somewhere? Every Monday and Wednesday they seem to buy about £2bn worth. What’s that all about then?

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  • Was the money to be raised from this Gilt failure to pay for the existing commitments or the next round of commitments ?

    Because if it was for the last round of bailouts and promises then we are in a whole heap of trouble as we can’t honour our promises.

    When people fail to honour their promises the end is close as the money will stop flowing in.

    It’s like a company who defaults once and gives themselves a bad credit rating suddenly finds all credit limits with other suppliers are reduced or shut and they become unable to trade – quite quickly.

    Perhaps I’m reading too much into this.

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  • @8 – I don’t claim to understand these things fully, but I strongly suspect you are right.

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  • Just heard on Radio4 that on the scale of 1 – 10 with 1 being a storm in a tea cup to 10 being a sunami this event would register a 5 or 6.

    So fairly significant.

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  • dohousescrashinthewoods says:

    And presumably the state media are downplaying it.

    As I type, a police helicopter growls in the distance. There’s been a lot more of them of late.

    I do wonder if something is about to snap or if we’ll just get “frog-boiled” into the abyss (popular urban myth, apparently, but useful illustration)

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