UK At 80% Risk Of Rating Downgrade On Current Debt Plan:PIMCO

purch

To summarise:

The Debt Management Office today held an auction of 2015 Gilts with a coupon of 2 3/4%

There were competitive bids of about £ 10 billion, and ultimately £ 4.4 billion were issued (taking into account the post auction options)

Also today the Bank of England Bank undertook a Gilt Purchase operation.

There were offers amounting to £ 6.7 billion, and £ 1.7 billion were purchased.

So.

Market participants wanted to buy £ 10 billion of short dated UK Debt, and also wanted to sell £ 6.7 billion of short dated UK Debt.

£ 4.4 billion of short dated UK Debt was sold, whilst £ 1.7 billion was bought.


Sounds like a 'result'

StevieJ

mbga9pgf wrote: »

And you are missing my point - without the promise of QE, what incentive have the UK banks to buy into a low yeilding, high risk asset? Why are they going to risk their own cash?

Why are they high risk are we talking about gilts here ?

mbga9pgf

StevieJ wrote: »

Why are they high risk are we talking about gilts here ?

Yes, we are. I take it argentina's govt paper looked pretty stable, same with Iceland. Fact remains, if the liquidity was not there, the gilt sales would have struggled massively. They will struggle when QE ends. Period.

Correct me here, but a number of State actors as well as investment funds have pulled out of the UK gilts market; hence the yeild going up 1% over the past year. Thats pretty significant.

There is a pretty obvious mispricing of gilts at the moment that as soon as QE ends, is going to shake out in the mix. I wouldnt mind Taleb is going to make a packet on gilts once the QE market is confirmed closed. Id like to see what is going to happen to the FTSE once reverse QE starts to kick in, whenever that may be. Its going to be one mighty headwind for the economy.

stueyhants

The first hint of rates rising they will just do some more QE, small sporadic amounts just to prevent a Gilts strike over the next 6-12 months. Yes it will force sterling down further but the markets will accept it, because in the long run an economy based more on exports and less on imports can only be a good thing if we want to pay back what we owe.

mbga9pgf

stueyhants wrote: »

The first hint of rates rising they will just do some more QE, small sporadic amounts just to prevent a Gilts strike over the next 6-12 months. Yes it will force sterling down further but the markets will accept it, because in the long run an economy based more on exports and less on imports can only be a good thing if we want to pay back what we owe.

Oh, if markets were that predictable. They are on a knife edge. Too much QE, they risk a major run on the currency. Too little, they cant sell bonds. So, where is the great QE gauge of the ideal amount? The BOE didnt even see the Credit Crunch coming that "nutters" predicted on HPC back in 2006.

QE always had a lifespan defined internationally. It was fine as long as other central banks were stimulating. Not so great when you are the only G20 nation still doing it.

stueyhants

mbga9pgf wrote: »

Oh, if markets were that predictable. They are on a knife edge. Too much QE, they risk a major run on the currency. Too little, they cant sell bonds. So, where is the great QE gauge of the ideal amount? The BOE didnt even see the Credit Crunch coming that "nutters" predicted on HPC back in 2006.

QE always had a lifespan defined internationally. It was fine as long as other central banks were stimulating. Not so great when you are the only G20 nation still doing it.

I don't think the international news is all that much better. The US is probably going to have to keep buying it's own debt going forward. The BoE are not going to allow rates to go up too high, they will impliment some policy. The reasons the bears (myself included) were wrong this year is we didn't expect to see the lengths the government will go to maintain asset prices. They are not suddenly going to give up now. So expect a slow gradual decline in sterling until this debt is slowly paid off.

mbga9pgf

stueyhants wrote: »

I don't think the international news is all that much better. The US is probably going to have to keep buying it's own debt going forward. The BoE are not going to allow rates to go up too high, they will impliment some policy. The reasons the bears (myself included) were wrong this year is we didn't expect to see the lengths the government will go to maintain asset prices. They are not suddenly going to give up now. So expect a slow gradual decline in sterling until this debt is slowly paid off.

Since when did the government control the economy? The suggestion that any evidence of a Labour victory will cause a gilts/currency crisis should be testemony to that. You over-rate the power of governments.

You cant get away from the indesputible fact that the debt will need to be paid off, any extra debt, which we will definately need, WILL require higher recompense. Even if we dont stop QE, other governments will, severely limiting global credit. There simply is not the liquidity out there to support corporate deleverage write-down and support government leveraging up - the short of it, we have some pretty serious budgetary cuts coming, I reckon 12.5% over 2-3 years as a start.

ManAtHome

chucky wrote: »

surely the bid amounts will come to more than the total issue amount?

Dunno - the issue that failed last March was because there weren't enough bids, but a bit of Peston's blog implies this issue (2.75%) went for less than face value

Based on the market price of this gilt, the Treasury would have paid 2.75% interest for the money in early December, when this maturity of gilt was trading at par. Today it will pay around 3.1% interest, because the price has fallen fairly sharply.

Blog here http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/01/the_market_test_of_britains_cr.html

stueyhants

mbga9pgf wrote: »

Since when did the government control the economy? The suggestion that any evidence of a Labour victory will cause a gilts/currency crisis should be testemony to that. You over-rate the power of governments.

This crisis isn't over I agree 100%. The policies done to date are merely a sticking plaster over the current problems. But why does everyone think they are going to just remove the plaster and let the patient bleed. Even if Cameron gets in he isn't going to commit political sucide and crash the economy. Labour have managed to delay and drag out the pain. We are going to be dragging along the bottom with some periods of low growth followed by contractions for the next 10 years.

Its not black and white, the markets are not going to suddenly ignore the UK just because we cut by 4% and not 10%. Yes rates will rise but with a bit of QE'ing the governement will be able to raise enough money. Sterling will suffer but then imports should drop and exports pick up. imo House prices are going nowhere fast for the next 5 to 10 years.

mbga9pgf

Even if Cameron gets in he isn't going to commit political sucide and crash the economy

I am not a conspiracist, I have no evidence, but my gut feeling is that Cameron is doing everything he can to not win the next election with a landslide.

Its not black and white, the markets are not going to suddenly ignore the UK just because we cut by 4% and not 10%

I dont believe personally that QE can go on for much longer, based on the market response.