The local factor was the market's slow awakening to the funding implications of the bigger than expected government borrowing requirement. Though the Bank of England claims that funding of this year's PSBR is still on track, this is plainly nonsense. The proposition could only be true if the official Treasury PSBR forecast turns out to be accurate. In fact it is likely to be pounds 5-8bn too low. The schedule of auctions, will, as a consequence, not be enough. To fill the gap, all the remaining gilts auctions this financial year will have to be as big as the one that flopped yesterday, at pounds 3bn. It is also possible an additional auction will have to be squeezed into the schedule.
The gilts markets yesterday delivered a short, sharp shock to the Chancellor - a warning that the Budget must take no risks with tax cuts. Investors will not pay for public profligacy, was the clear message.
Some of this concern is no doubt overdone. The PSBR is on a downward trend and will be lower, as a proportion of GDP, than most other countries' budget deficits even if the Treasury target is overshot. And the concern about over-supply of gilts needs to be balanced by recognition that demand is set to rise. Reform of the gilts markets should attract international investors and there are also regulatory reasons why domestic pension funds need to buy more gilts.
But even if oversupply fears prove ill founded, international factors are more than enough to undermine the gilts market right now. Bond prices have fallen around the world during the past week because of a change in view about prospects for inflation and short-term interest rates. In Britain and elsewhere, this summer's optimism about interest rate cuts is being reversed.
The slow fuse for this flip in sentiment has been the series of statistics showing that growth in the US is picking up. Mr Greenspan was right - again. America has experienced a pause, not a recession. The experience on this side of the Atlantic could well turn out to be the same. Long- term that might be good news for the Chancellor in electoral terms but it does not ease his short-term funding difficulties.
Costain spotlight turns on Sir Christopher
Assuming Peter Costain can swallow the indignity of his demotion from chief executive to non-executive deputy chairman, yesterday's board changes are a sensible attempt to try and solve the beleaguered construction company's problems. Alan Lovell, who takes over the top job, has only been with the group since 1993, when he joined as finance director, so he comes with the twin benefits of not being part of the old discredited regime but having already got his feet under the table. He at least knows what he is letting himself in for.
This column has regularly called on Mr Costain to accept responsibility for his eponymous company's dramatic fall from grace by falling on his sword - but we have never doubted that he had a role to play in any rescue of the business. Outside the City, where his name is mud, Peter Costain still carries considerable clout in the industry, especially overseas ,where Costain has increasingly had to go looking for work.
Institutional investors who have long called for changes at the top, stung by the 98 per cent fall in the value of their investment since 1987, now have both a head on a plate and the prospect of recovering some of the money they chucked away in a series of desperate cash-calls.
Two of those, at the equivalent of over pounds 15 a share in 1991 and pounds 3 a share two years ago, took pounds 160m from shareholders. The shares fell another 9p to 69p yesterday as the market added a further pounds 10m interim loss to the more than pounds 400m of red ink the company has notched up over the past five years.
Now that Mr Costain has effectively become an ambassador for the company, touting for business in the parts of the world where they are still building the roads and oil rigs which Costain knows best, investors might justifiably turn their attention to Sir Christopher Benson, whose contribution as chairman has hardly been an unqualified triumph.
Realism needed in understanding risks
Tricky business, banking supervision. The lesson drawn by the Bank of England from the Barings collapse was the need for a sharper understanding of the business being supervised, and for regular on-site inspections of banks, both in their domestic headquarters and in overseas offices. Good stuff, but it didn't stop the Daiwa debacle.
Since the 1991 Salomon bond trading scandal, New York's regulatory system has been adorned with every bell and whistle imaginable. The Japanese Ministry of Finance carried out inspections at Daiwa's New York office in 1989 and 1994 and spotted nothing untoward. In addition the Americans now regulate foreign bank subsidiaries quite explicitly. Judging by the ease with which Toshihide Iguchi carried out his exploits, however, even these new, improved efforts have grave limitations.
Matters are not helped by the international division of responsibilities between host and parent country supervisors. In the US itself, responsibility for examining Daiwa has been jointly shared since 1991 by the New York Fed and the New York State Banking Department. This splitting of supervision is asking for trouble. But remedying it is easier said than done. The Daiwa Bank case highlights a more general fact of supervision today - that it is in danger of feeding and pursuing expectations well beyond the reach of what can realistically be achieved in a dramatically changed international financial environment. While the Daiwa case, like Barings, may have been simply one of incompetent and negligent management control, modern banking presents a huge array of quite different and possibly intractable supervisory problems.
As Rudi Bogni, chief executive of Swiss Bank Corporation's London operations points out in the launch issue of Prospect magazine, a "knowledge gap" has built up not just among supervisors, but among managers too. The explosive development of complex financial techniques and instruments in a fast moving, global market, has left many bank executives incapable of properly managing their business. Mr Bogni has decided to go back to university to sharpen up his rocket science, but that is not an option for the regulators. The fact is that banking today bears little relation to its forerunners 20, or even 10 years ago. It is questionable, therefore, whether the seal of approval that central banks confer on those under their tutelage, with all it implies for depositor safety and protection, is still appropriate. This is not a message of defeatism for regulation, rather a reminder of the need for a realistic awareness of risk.