Gilt auction setback for Bank of England
Thursday 07 December 1995
The difference in the auction between the average yield and the highest yield accepted, the "tail", was the largest on record. The average accepted yield was 7.45 per cent, the highest 7.56 per cent, a "tail" of 11 basis points.
"The Bank had to mop up a lot of silly bids," said Nigel Richardson, head of bond research at Yamaichi International. The Bank put a brave face on the reverse, saying that the dispersal of bids was not surprising given the recent market rally.
A further indication of the difficulty faced by the Bank in the auction was that it received bids only one-tenth higher than the pounds 3bn being sold. At the last auction in October the "cover" of bids was almost double the value of the stock on offer.
Immediately after the auction result, gilt prices slumped and at one point market-makers were said to be facing losses of pounds 100m. However, hopes of rate cuts following further evidence of a weak economy, together with a surge in US treasuries, led the market into a sharp rally and the March long gilt future ended up three-quarters of a point on the day. The short sterling future, which indicates interest rate expectations, ended trading implying a cut in base rates of more than half a point by March.
The trigger for renewed hopes of early interest rate cuts came from the latest industrial production figures. These showed a monthly fall in October of almost 1 per cent, although almost all of that could be attributed to the effects of weather. Temperatures at a 30-year high for October depressed gas extraction and the output of electricity and gas utilities.
Manufacturing output edged up by 0.2 per cent, in line with market expectations. The Central Statistical Office said the underlying annual growth rate of manufacturing remained at half a per cent. Output fell in food, drink and tobacco, chemicals, and textiles and clothing, but rose in engineering and coke and nuclear fuels.
According to Simon Briscoe, UK economist at Nikko Europe, the figures were "a pretty sharp reminder of weakness in the economy and a nail in the coffin for the growth pause theory".
- 1 Disney heiress Abigail disowns her share of family profits in West Bank company
- 2 The secret report that helps Israel hide facts
- 3 'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
- 4 Israel's propaganda machine is finally starting to misfire
- 5 HSBC closes bank accounts belonging to Muslim clients in the UK
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK
Sabina Altynbekova, the girl branded 'too good looking' for volleyball, says social media obsession with her is a 'bit much'
Disney heiress Abigail disowns her share of family profits in West Bank company
Drew Barrymore’s sister Jessica found dead in her car surrounded by 'dozens of white pills'
'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
The secret report that helps Israel hide facts
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A day in the life of Vladimir Putin: The dictator in his labyrinth
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Boozy, ignorant, intolerant, but very polite – Britain as others see us
- < Previous
- Next >
iJobs Money & Business
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...
£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...
£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...
£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...