Friday, 27 March 2009

Gordon's Successful Gilts Auction

Yesterday the DMO sold:


The auction was covered 2.72 times and the results were:

Real Clean Price £106.21 Inflation-adjusted Clean Price* £108.736736

Real Yield 1.375%

So why were investors to pay over par for this gilt? Well it is an RPI index linked bond so its coupon will be 1.875% + RPI. Only the government and a very few utility type companies with RPI indexed revenue streams can risk issuing this type of bond but it is the only type of bond that can be used by private pension schemes to guarantee index linked pensions. Hence these so called linkers are in great demand, sell at a high price and at the price bid pay a real yield of 1.375%. Not many schemes can afford these bonds but when inflation takes off after QE then they will prove to be a good safe investment. You have to pay for quality!

These bonds were introduced when double digit inflation was common and we may well see double digit inflation again when the sterling fall kicks in.

Gordon however should have remembered how dangerous it is to go away on foreign jaunts leaving enemies at home a free hand. Mervyn King and Gordon dislike each other but does anyone now like Gordon? Merv is not exactly lovable either. Come back Tony you were lovable. It will be a long time before we see another Scottish PM.

Daniel Hannan's superb performance continues to shake the political world whilst our MPs and MEPs continue to milk the system. Radical action is needed. Cut the number of MPs to 400 and don't send UK MEPs to Brussels.

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