Government debt not “rocketing” yet

Yesterday's gilt sale had the highest level of demand for government bonds in 9 months. The auction is at odds with news that gilt yields were set to "rocket".

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.

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.”

9 Responses to “Government debt not “rocketing” yet”

  1. 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.

  2. 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.

  3. Jack Sutcliffe

    VIA LFF: Government debt historically cheap – but for how long? http://trunc.it/4kjgc

  4. Bernie D

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

  5. Jonathan Taylor

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

Comments are closed.