Wednesday, March 25, 2009

British Bond Auction Failure

In an earlier post, we had written about Quantative Easing and governemnt keeping rates artificially low.  We had worried whether the there will be ennough investors out there to buy the bonds.

The 40-year UK auction did not have ennough demand. 

Bank of England Governor Mervyn King told a U.K. parliamentary committee Tuesday that the government needs to be "cautious" about further fiscal stimulus.

This is the kind of news that scares you.  Just imagine UK/US unable to sell their record bonds at the time they need the most.  This is why the government spending an enormous amount may come back to haunt later. 

This auction will also determine how successful the governments are in QE.

Mr. King spooked the market Tuesday by saying that the central bank wouldn't necessarily need to buy the full 75 billion pounds of gilts it first announced. That came on a day when consumer price inflation was shown to have risen in the year to February, raising questions about the extent of further quantitative easing required


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1 comment:

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