There’s some interesting action (if you’ll pardon the pun) over in the U.K. bond market this morning. The government tried to auction off 1.75 billion pounds of 40-year gilts this morning. But demand was extremely weak, with investors only bidding for 1.63 billion pounds.
The failed auction comes as the U.K. government is selling massive amounts of debt to fund bailouts and stimulus packages — efforts that could drive the U.K.’s deficit to as much as 11% of GDP by 2010. And of course, the Bank of England recently said it would buy as much as 75 billion pounds in both corporate and government bonds there, essentially monetizing the country’s debt.
Ten-year gilt yields surged as much as 20 basis points from low to high before paring about half the move. We have seen spillover selling in U.S. bonds as a result, with the long bond futures down 1 7/32 as I write.
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As a resident of the UK, I really cannot believe that the government (and that goes for the US too), that they are simply doing what people did with property. When will they learn that turning debts into profit simply cannot work. Debt is debt, not money. Here in the UK we have come a long way since the 1800’s, when debt was punishable by jail. By those standards the UK would be effectively an open prison! I’m fortunate enough not be in debt, but I have no pension apart from what the state provides, which won’t be much when I come to claim it.