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Gilt yields bounce between failed auction and successful buy-up

The Bank of England suffered its first failed gilt auction for seven years but yields quickly fell after another successful round of quantitative easing.

Ten-year gilt yields rocketed to 3.5 per cent this morning after the Government’s £1.75bn auction of 4.25 per cent Treasury gilts dated 2049 failed, with a bid-to-cover ratio of just 0.93; the first time a UK gilt auction has failed to be covered since 2002.

This came after Mervyn King yesterday revealed that the Bank of England might slow down its quantitative easing plan of buying up gilts.

But then this afternoon, yields dropped back to below 3.3 per cent after the Bank successfully completed latest round of gilt buy-ups. It attempted to buy £3.5bn of gilts and was offered £4.9bn worth of Government bonds.

Liberal Democrat Shadow Chancellor Vince Cable says: “While this failed gilt auction should not be seen as some sort of financial Armageddon, it is clear that the markets are sending a signal to the Prime Minister and the Chancellor to make their minds up over borrowing.

“Government dithering has already caused massive damage to Britain’s banking sector and the clear disagreement between Brown and Darling over government borrowing threatens to further damage the public finances.”

John Charcol senior technical manager Ray Boulger says if yields do shoot back up, advisers should look to get their hands on cheap fixed rate mortgages while they have the chance: “We will also see a few more fixed rate cuts on Friday but after that it looks as if the recent trend of fixed rate reductions is about to be turned on its head.”

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