Bank of England fears new crisis as quantitative easing ends

stueyhants

http://www.guardian.co.uk/business/2010/jan/31/bank-warning-quantitative-easing

The Bank of England is poised to follow the US by warning high street banks of the new risks they face from future rises in interest rates and the current upheaval in the bond markets.
Deputy Bank of England governor Paul Tucker has admitted that UK authorities should consider emulating Donald Kohn, the vice-chairman of the US Federal Reserve, who issued a uncompromising warning on Friday about the "uncharted waters" the financial sector finds itself in following the recession.
...

Tucker told MPs on the Treasury select committee last week that the US alert to banks had been discussed recently at an influential central bankers' forum in Basel, Switzerland. "The sense was that the US had shown a useful lead here and [that] was something that supervisors elsewhere ought to think about," he said.


So if im reading this right, this is the first step in 'forcing/suggesting' to UK banks they had better start buying up UK Gilts when QE ends this week.

This week, espically tuesday is going to be interesting. The first real test of a UK medium term gilt sales without QE.

stueyhants

Interesting how none of the bulls like argue against the risks of QE ending but love to jump on a EA marketing survey!

chucky

stueyhants wrote: »

Interesting how none of the bulls like argue against the risks of QE ending but love to jump on a EA marketing survey!

what's there to argue about, we all know the risks - nobody knows what will happen on tuesday. i haven't got a crystal ball, have you?

everything indicates it will be fine from all of the previous gilt sales and even looking at the greece gilts sale last week there is still an appetite - but you never know what the markets will do.

if you know and can predict what the markets are going to do could you let me know and we can make some money :T

stueyhants

chucky wrote: »

if you know and can predict what the markets are going to do could you let me know and we can make some money :T

My prediction - rates going up.

Greece managed to get their Gilts sold but at a premium.

Radiantsoul

I suspect all will be well.
There is probably a risk that rises over time as the appetite for gilts in financial institutions is finally satisified. But at the moment there is probably a reasonable demand for the risk free investments which have been in short supply of late.

chucky

stueyhants wrote: »

My prediction - rates going up.

Greece managed to get their Gilts sold but at a premium.

we're not in that much that Greece are in - they're hoping for an ECB bail out.

i dont think it will be an issue, not on this one anyway - yields will defo increase over time if they carry on with it i would have thought, but let's wait and see

stueyhants

chucky wrote: »

we're not in that much that Greece are in - they're hoping for an ECB bail out.

i dont think it will be an issue, not on this one anyway - yields will defo increase over time if they carry on with it i would have thought, but let's wait and see

I'm not predicting a massive rise in rates but I think we are close to a tipping point, a 1% rise in rates for new borrowers could easily stop the market dead. It's all about perception and trends. Mortgage rate trends over the last year were in favour of HPI, this year they could easily turn the other way.

Lance

Quantitative easing is a crutch with side effects if it goes on too long. The M4 money supply, lendng, is not increaseing and so QE is not curing the patient and they fear removing the crutch will cause patient to fall flat on his face....... before a General Election. They will continue QE because they have no shots left with I.Rs at 0.5%.

stueyhants

Lance wrote: »

Quantitative easing is a crutch with side effects if it goes on too long. The M4 money supply, lendng, is not increaseing and so QE is not curing the patient and they fear removing the crutch will cause patient to fall flat on his face....... before a General Election. They will continue QE because they have no shots left with I.Rs at 0.5%.

That is also my prediction. They will pause for one month, allow a slight rise in yields and then the following month start up again.

Radiantsoul

Lance wrote: »

Quantitative easing is a crutch with side effects if it goes on too long. The M4 money supply, lendng, is not increaseing and so QE is not curing the patient and they fear removing the crutch will cause patient to fall flat on his face....... before a General Election. They will continue QE because they have no shots left with I.Rs at 0.5%.

I am not sure they are allowed to continue.
I also think the lead time is going to be quite long on QE that removing it is not going to have much impact before the election.

Lance

I think the Bank , Government, are more concerned with 'predictions of doom' rather than actual real results of ending QE before the election. Besides, without QE what else can the B.of.E (Government) do? They must appear to be doing something or we might panic.