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Bank offered £10bn in Gov’t bonds

The Bank of England was offered £10.5bn in Government bonds from investors yesterday as it began its bond buy up with newly created money.

The Bank announced it was to buy £2bn in Government bonds from investors in its first stage of quantitative easing. It plans to spend £75bn over the next three months.

But it was offered £10.5bn in bonds yesterday as investors clamoured to sell their bonds, which the Bank bought close to market price.

Yields on the gilts plummeted, which cheered the Bank; ten-year bond yields fell to a record low of 2.95 per cent yesterday, the lowest level since records began half a century ago.

M&G Investments head of Retail Fixed Interest Jim Leaviss says in his blog: “There was no free money for anybody. The reverse auction was 5.25 times subscribed. The premia paid by the Bank over and above the prevailing market prices were very small.

“Yesterday, the ten year gilt yield fell briefly below those in the US and Germany, despite the UK’s perceived credit risk as measured by the CDS market being much higher.

“Like London buses, there’ll be another auction along in a minute – or in this case, two reverse auctions per week for the foreseeable future.”

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