Thursday, 26 March 2009

How long before a UK gilts strike?


Yesterday's failed auction caused rumblings in the City. Effectively, the City trading desks want to buy short-term guilts off the government and sell them back to the bank of England at a profit.

In this way, the taxpayer is transferring money to the Banks for re-capitalisation. Easy, risk free profit for the City Traders.
QE (Quantitative Easing) was not meant to do this, as longer-term buyers were supposed to be involved, but it is the law of unintended consequences. When the Government tried an issue of long-term debt though, there was a strike, whereas the short-term debt auction today, which has a nice guaranteed bonus on it from HMT, goes without a hitch.
The long-term is an issue though, QE is going to cause inflation and long-term bonds at under 5% return with no inflation guarantee does not look like a great investment, hence the lack of buyers. Do you think inflation will stay so low for the next 40 years?

If the Bank of England ends QE early, then we will see if there is a short-term strike too. To fob off yesterday as a blip is incorrect, it is still a big warning. Hence Mervyn King sounding off earlier this week.

The Government is going to have funding issues big time if it follows a route of spending more money without any cuts in other expenditure.
Bonus points is you can associtate the picture in the comments.

15 comments:

Mark Wadsworth said...

I always thought it was spelled 'gilts'.

When they started this QE thing, they'd issue gilts on Tuesday and Thursday and buy them back on Wednesday. So what day is the buy-back this week?

roym said...

smashing. where do we buy these babies?

Demetrius said...

If I want to borrow, then someone has to lend it to me. If I lend to myself then the money has to come from somewhere. In the case of government this can only be from two sources, one is the taxpayer, the other is by inflating the currency, that is forced lending on the unlucky ones. There is every sign the government is going to do both.

Bill Quango MP said...

MW.
But when you think about it GUILTS does seem more likely what they had in mind.

electro-kevin said...

You seem to be in 'dialogue' with the present Government.

This is a mistake. We simply can't move forward with Brown at the helm. Nor Nu Lab for that matter.

electro-kevin said...
This comment has been removed by the author.
electro-kevin said...

And ...

Was McBroon trying to sell gilts or was he trying to sell quilts ?

If the latter then he's a bit of a twat. Summer's on the way.

He wouldn't even make the first round of The Apprentice.

Irina from Dublin said...

Employing Pig's to mix cement?

Philip said...

Hmmm. A few weeks ago I was talking to a senior Labour backbencher, whom I believe to be a man of integrity, whatever his politics. "What should we fear" he asked. "A gilts strike" i said. " What's that ?" . " Ask Callaghan "

Isn't he dead?

Anonymous said...

Don't think so. I saw him in a film recently.

Richard Elliot said...

Robert Preston was talking about the possibility of BofE buying equities rather than gilts. Do you think that would be a good idea?

Wouldn't provent the gilts strike, but would stop traders profiteering on the short term gilts.

Anonymous said...

Does the B of E pay interest to deposits held there by the clearing banks?

Man in a Shed said...

Good to have some of this explained.

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