Gilt auction fails

A sale of long-dated British government bonds today failed to attract enough bids, selling only £1.63 billion of the £1.75 billion of bonds available.

It was the first time in seven years that a gilts auction failed to find buyers for all of the debt, and followed a warning by Mervyn King, the governor of the Bank of England, that the country could not afford a second round of fiscal stimulus measures.

Gilt yields rose sharply this morning after the news, but fell again in the afternoon, prompting Capital Economics, the research consultancy, to say the auction “did not signify a major turning point”.

The bonds are due to mature in 2049 and are not included in the Bank of England’s gilt-buying programme.

Capital Economics said the long-dated bonds would always be hard to sell, and added: “Admittedly, there will be a continual tug of war between worries about the huge amount of bond issuance on the one side and the underlying economic and financial fundamentals on the other. The former have had the upper hand in recent days. However, the latter remain strongly positive for gilts.”

However, Vince Cable, the Liberal Democrats’ shadow chancellor, said: “It is clear that the markets are sending a signal to the Prime Minister and the Chancellor to make their minds up over borrowing.”


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