I ranted about the ‘failed gilt auction’ yesterday. Please forgive a second, hopefully brief rant today.
As is entirely predictable Fraser over at the Spectator has become a excited and is once more preaching doom.
More reasoned commentary can be found at the FT:
Most analysts believe Wednesday’s failure was due to a combination of unfortunate circumstances, suggesting it was more of a one-off than the beginning of a damaging trend.
John Wraith, head of sterling rates product development at RBC Capital Markets, said there was a danger that the auction failure could be repeated. But, he said: “I think we can be relatively relaxed about it, particularly as the DMO and most analysts have expected an auction failure at some point.
“There were a set of circumstances that undermined demand, and the auction did not fail by much.”
These unfortunate circumstances included comments on Tuesday by Mervyn King, Bank of England governor, that the government should hold back from announcing another stimulus programme in next month’s Budget, which coincided with poor inflation figures published on the same day.
And at Bloomberg.
But, again here are my thoughts.
(i) Getting away £1.6bn of debt, on forty year terms, at 4.5% is not a failure.
(ii) The yield on 10 year gilts is still sub 3.5%. 3.32% as I type.
(iii) As long as we can keep selling 10 year gilts at anything below 4.5% we do not face a funding problem. Remember yields were over 12% in the early 90s.
(iv) The Governor’s comments on Tuesday directly contributed to the failed auction.
I still think we need a fiscal stimulus. I still think we can fund it. People from all wings of the party, from John McDonnell to Luke Akehurst recognize that a fiscal stimulus is necessary and desirable. The coming budget needs to be bold.