UK government bond auction fails?

By stoat on March 25, 2009.

Well, that was the Beeb headline, to The UK Treasury has failed to sell all its government bonds in an auction for the first time since 2002. But in fact It wanted to sell £1.75bn of 40-year bonds, but investors only bid for £1.63bn of the debt, the Debt Management Office said. so (a) it is hardly an obvious failure, when most of it was sold and (b) this is 40 year debt.

I wonder what it means.

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"First time since 2002" is hardly terrifying, either.

And to steal an explanation from elsewhere:

Today's auction was for a rare (& therefore relatively illiquid) 40-year issue. It's only a few days before the UK tax yearend, which creates it's own problems. And they're placing unusually long-term debt at a time of historically low current interest levels. I'm not saying there's not a debt-overhang problem (there probably is), but this isn't clear evidence to prove the case. Also, the inflation-linked issue in 2002 was unusual - a better comparison is 1995, where conventional (10 year IIRC) bonds failed to sell 100% offered at auction.

I do believe that there is a looming problem with the increase in volume of GBP sovereign debt forcast to be issued, and this *may* be an early indicator. But there are enough quirks about this individual auction that it cannot be used as a proof.

I think what the mean is that it is the first time since 2002 that they did not sell all of the stock they were issuing. That will be due to the interest rate being too low.

You can see that as the investors believing that inflation will reduce the value of their investment by more than the interest they will receive.

Today's bond issue was oversubscribed by 250% but these bond are inflation linked.

Cheers, Alastair.

It means that 40-year bets on sea ice are not likely to find many takers either?

Really, I wonder it myself why they would say it is a failure when so much has been sold. I think people say things based on personal motive or else they have a hidden agenda. That is why, we cannot just accept any opinions we hear about but make our own conclusions based on all the facts for or against the issue.

Evelyn Guzman
Debt Challenger

I put it down to general financial illiteracy amongst the media, and the opinions of doommongers that we're all doooooomed. There are further subspecies, from those who think we're doomed whatever the gvt does, to those who think we're doomed because of what the gvt does.

Me, I reackon we're in for at least 3 years of hard times before it gets much better, lots of other countries will be worse off than us, we'll leave a public debt so large that our children will still be paying it off, but it is in no ones interest to deliberately collapse the global economy, so nobody is doing anything too stupid. Should some unlikely but explosive things happen in the next 2 years, that will change.