Gilt Sales Show U.K. Rating Not a Concern

jim83

You would have to be an absolute lunatic to buy gilts at the moment, particularly long dated ones.

The yield on a 30 year maturity is 4.12% - does even the most staunch deflationista think that inflation is going to be less than 4.12% averaged over that period? who could possibly be buying them?

The answer is that it's the "greater fool" approach to investing. Nobody is buying these things to hold to maturity, they are speculating that the yield will drop further so they will be able to sell the paper on for a profit. But they are making the fatal assumption that there will be someone stupider who is willing to buy from them in the future.

Ultimately the only buyer will be the BOE. With printed money.

Masomnia

jim83 wrote: »

You would have to be an absolute lunatic to buy gilts at the moment, particularly long dated ones.

The yield on a 30 year maturity is 4.12% - does even the most staunch deflationista think that inflation is going to be less than 4.12% averaged over that period? who could possibly be buying them?

The answer is that it's the "greater fool" approach to investing. Nobody is buying these things to hold to maturity, they are speculating that the yield will drop further so they will be able to sell the paper on for a profit. But they are making the fatal assumption that there will be someone stupider who is willing to buy from them in the future.

Ultimately the only buyer will be the BOE. With printed money.

Actually a lot of them are bought by pension funds for annuities.

jim83

Fair point, I did say "nobody is buying" where I should have said "very few are buying". But my point remains the same - pension funds are hardly the cause of the recent price movements in gilts.

It's as much of a bubble as housing was.

Wookster

Masomnia wrote: »

Hopefully that should keep the 'Britain is bankrupt' brigade quiet for a while.

Couple of points:

1. The UK interest rate is fine at the moment - that doesn't mean it will continue to be fine as competition for borrowing limited resources increases.
2. The quote is from a treasury individual so one must take what he says with a pinch of salt.

No one can know what the future brings and yes I will accept that most of us "doom mongers" are risk averse but that doesn't mean that some risks don't come off.

MiserlyMartin

jim83 wrote: »

You would have to be an absolute lunatic to buy gilts at the moment, particularly long dated ones.

The yield on a 30 year maturity is 4.12% - does even the most staunch deflationista think that inflation is going to be less than 4.12% averaged over that period? who could possibly be buying them?

The answer is that it's the "greater fool" approach to investing. Nobody is buying these things to hold to maturity, they are speculating that the yield will drop further so they will be able to sell the paper on for a profit. But they are making the fatal assumption that there will be someone stupider who is willing to buy from them in the future.

Ultimately the only buyer will be the BOE. With printed money.

What about index linked Gilts pension funds? Is it time to exit out of those?

purch

that doesn't mean it will continue to be fine as competition for borrowing limited resources increases

What Limited Resources ??

'Gazillions' (which is bigger than a trillion ) of this resource exists throughout the World...........it has to go somewhere, and if all sovereign debt has low yields then the competition isn't as fierce.

purch

What about index linked Gilts pension funds?

With the Inflation measure used to calculate your yield likely to fall close to zero, or even negative, maybe not the best stock to hold.

Of course when Wookie and his mates long predicted 145% Inflation rate starts to bite the yield will be slightly more attractive, but unfortunately the economy will have imploded long before then (along with the rest of the World) so your holding will be worthless !!!

Wookster

purch wrote: »

Of course when Wookie and his mates long predicted 145% Inflation rate starts to bite the yield will be slightly more attractive, but unfortunately the economy will have imploded long before then (along with the rest of the World) so your holding will be worthless !!!

You need to get your facts right, I have said several times that I do not believe we will have hyper inflation in the UK. Hyperinflation is inflation over 100% PA.

purch

You need to get your facts right,

My bad !!!

Change that to "!!!!!!? and his mates"

chucky

Wookster wrote: »

You need to get your facts right, I have said several times that I do not believe we will have hyper inflation in the UK. Hyperinflation is inflation over 100% PA.

you are not !!!!!! then; however you have compared the UK with Zimbabwe and the Weimer Republic and they had hyper inflation - what's the difference?