Wednesday, 25 March 2009
Gilts Slump as Demand at U.K. 40-Year Bond Auction Falls Short March 25 (Bloomberg) -- U.K. government bonds slumped, extending three days of losses, after an auction of 40-year gilts failed to meet the amount of debt the Treasury offered. Investors bid for 1.63 billion pounds ($2.4 billion) of notes, lower than the 1.75 billion pounds of 4.25 percent notes the Treasury had slated to sell, the U.K. Debt Management Office said today.
“Basically it’s the first failed auction,” said John Wraith, head of sterling interest-rate strategy at RBC Capital Markets in London. “They didn’t receive enough to cover it all so the market’s obviously sold off extremely heavily.” U.K. bonds fell, pushing the yield on the 10-year gilt 10 basis points higher to 3.43 percent by 11:02 a.m. in London. The 4.5 percent security due March 2019 slipped 0.82, or 8.2 pounds per 1,000-pound face amount, to 109.04. The yield on the two-year note rose three basis points to 1.29 percent. Yields move inversely to bond prices.
So what does this mean????
Interest rate rises or slashing public expenditure are the only solutions.
Its only one auction, but still significant enough.
Imagine the vicious circle, falling GDP, falling Tax revenue, Increased borrowing, Low demand for Bonds(Gilts), higher rates to stimulate demand for bonds, leading to lower GDP, lower tax, higher Borrowing, Higher rates....so on and so on..........
Answers to this on a postcard to Mr A Darling, 11 Downing Street.
Tracker mortgage anyone?