Government debt not “rocketing” yet

City AM report today that:

“A key auction of government bonds was yesterday heavily oversubscribed, in a tentative sign that investors are still keen to buy UK debt despite fears over the country’s credit-worthiness.

“The Debt Management Office (DMO) said it had received bids for 2.68 times the £4bn of five-year gilts on offer, equivalent to the highest level of demand for government bonds in nine months.”

The average yield was 3.08 per cent. As the graph below shows, this is a cheap price in the context of the last 12 years and somewhat at odds with reports in Tuesday’s Evening Standard that gilt yields were set to “rocket” and news that Pimco, the world’s biggest bond fund, was cutting its holdings of US and UK debt.

Yield-Securities

David Prosser in the Independent, “And yet for all the panic in the wake of the PBR over Britain’s treasured AAA credit rating, Pimco is very much in the minority at putting the chances of a downgrade so high.”

But FT Alphaville today set why the auction may not contain such good news:

“The real test of demand for gilts is now widely expected to come next Wednesday, with the £2.25bn 4.25 per cent 2049 auction. That particular offering has fewer of the supportive traits of this week’s one.”

Mark

The debt was sold in the morning and then bought back in the afternoon under the Quantitative Easing money printing scheme. So don’t take one auction as a guideline, especially since the short term yields are suppressed by the scheme. This is due to end in the next few weeks and the gilt market will have to function by itself then.

All this might be boring to you but the UK is on course to spend more on interest payments to bondholders than primary and secondary education combined. It matters. Especially if the interest rate rises and more and more government spending gets diverted from services to interest payments.
http://www.order-order.com Guido Fawkes

Will this is very thin, they gave those bonds away cheap to make the auction work. They will have to do that more and more. Yields will rise as sure as eggs are ejected from chicken’s bums.

QE is only delaying the day of reckoning at greater expense.
http://twitter.com/jacksutcliffe/status/7481049157 Jack Sutcliffe

VIA LFF: Government debt historically cheap – but for how long? http://trunc.it/4kjgc
http://twitter.com/realdebt/status/7486570609 Bernie D

Government debt not "rocketing" yet | Left Foot Forward: “The Debt Management Office (DMO) said it had received bi… http://bit.ly/6IDnjC
http://twitter.com/jon2aylor/status/7493451641 Jonathan Taylor

"Investors are still keen to buy UK debt despite fears over the country’s credit-worthiness" http://bit.ly/4n9j8h
Anon E Mouse

Guido – My biology may not be the best but I’m sure that’s not the right orifice for the ejection of eggs from a chicken…

Will – I thought you worked at the treasury for four years. What exactly did you do there? What educational level of maths did you achieve to get that job exactly?

The interest payments on Browns debt alone is estimated to be 60 to 70 billion by the middle of next year…
http://torylies.blogspot.com/ Richard Blogger

Anon.

Guido is right, a chicken only has one hole at the back for both defecation and egg laying. It is called the cloaca. Internally there are two ducts, one for the egg and the other is the intestines, but externally there is just one hole.

Whether you call this hole a bum or cloaca is a matter of decorum I guess.
Anon E Mouse

Richard – I bow to your greater knowledge of the orifices of chickens…
http://www.leftfootforward.org/2010/02/whats-the-answer-george/ What’s the answer, George? | Left Foot Forward

[...] The Tories also talk about Britain’s “debt crisis” when the UK went into the recession with lower levels of debt than most other OECD countries. Indeed, Meanwhile, gilt yields are near record lows. Despite Osborne’s fears, the yield from 5-year British Government Securities (gilts) remain below 3 per cent – well below their long-run average. [...]