Posted on 03/11/2009 6:27:04 PM PDT by bruinbirdman
Investors piled into gilts after the Bank of England officially launched quantitative easing, buying £2bn worth of UK government bonds at its first auction.
In what economists deemed a success, the Bank received £10.5bn worth of offers for gilts - more than five times what it sought.
However, doubts remain as to whether the money the Bank is creating has found its way to the pension funds and insurance groups the Bank is keenest to target.
Market insiders said that most of the gilt selling had been done instead by investment banks and hedge funds, many of whom had been buying gilts from the Debt Management Office and merely selling them straight onto the Bank for an instant profit.
Although the infusion of cash will still find its way into the economy if this is the case, the Bank thinks it stands a better chance of success if non-banks take part, since they are more likely to use the newly-created cash rather than hoarding it as they try to repair their balance sheets.
The auction was the debut of the Bank's scheme to create £75bn and pump it into the economy - a plan designed to boost growth now that interest rates are now barely above zero. The Bank is buying up a combination of gilts and corporate debt each week and will stage two further auctions in the next seven days.
The Bank does not publish details of the organisations that participate in the scheme and only it knows what institutions are involved.
(Excerpt) Read more at telegraph.co.uk ...
“Gilts are bonds issued by the governments of the United Kingdom, South Africa, or Ireland. The term is of British origin, and refers to the debt securities issued by the Bank of England, which had a gilt (or gilded) edge. Hence, they are called gilt-edged securities, or gilts for short. Generally, when a market participant refers to gilts, what is meant is British gilts unless otherwise specified, and the description below applies to the UK gilt market. ONS data reveal that about two-thirds of all gilts are held by insurance companies and pension funds.[1]”
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Their version of T-Bills, or so I gather?
That doesn't sound like they are doing any good.
The entire world is going bankrupt and all these jerks can think of is tgo print more money and spend more money. Is it any wonder the world is in the state it is in?
Uh-oh.
Correcto. And they didn't have a problem with a 2B pound auction; 5x subscription.
Would like to know maturities and rates.
yitbos
You’d think they would have mentioned those details.
It’s kind of important.
Not to mention that little matter of WHO bought them up?
That’s kind of important too.
The demand for bonds that have negative real (real = inflation-adjusted) return ought to scare the hell out of everyone. It indicates a total lack of investment opportunities and a lack of faith in the private sector. Diverting all this money toward government in the form of ultracheap loans is great for the government. Anyone care to bet that this is just a capricious windfall for the government?
Bank Of England Buys U.K. Gilts
~snip~
The Bank of England bought British government bonds Wednesday, effectively creating new money in an unprecedented effort to boost spending across the economy, free up credit markets and avert a deflationary spiral.
The speed and size of the plan -- 2 billion pounds ($2.8 billion) in government bonds, widely known as gilts -- caught markets somewhat by surprise, strategists said.
In Wednesday's actions, the central bank bought the gilts, which will mature between 2014 and 2018, via a reverse auction.
Earlier in the day, the "non-competitive" portion of the auction attracted no participation from non-bank gilt holders. In non-competitive bidding, gilt holders tell the central bank how many bonds they would be willing to sell at whatever average price is set by the competitive auction.
The Bank of England aims to buy a total of 75 billion pounds of gilts and corporate debt over the next three months. The central bank has permission from the U.K. Treasury to expand the program to 150 billion pounds if deemed necessary.
The Bank of England's nine-member Monetary Policy Committee formally approved the plan last Thursday after getting a green light from the U.K. Treasury. The move came alongside the committee's decision to cut the bank's official lending rate by half a percentage point, to 0.5% -- the lowest in the bank's 315-year history.
The announcement of the plan to effectively print money subsequently sent gilt prices soaring. Yields, which move in the opposite direction of bond prices, fell.
The 10-year gilt's yield tumbled below 3% earlier this week, plumbing its lowest level on record before rebounding Tuesday.
The 10-year's yield fell back to 3.08% following the auction.
yitbos
Can any Freepers out there who trade Forex chime in on what they think this development might mean for the price of the Pound? In the short term, does it mean a weaker or stronger Pound? I would think that this is Pound negative as it sounds like dilution of their money supply.
Anyone?
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