What am I missing - "wobbling guilt market"
Discussion
ATG said:
If you google for "10yr gilt yield" (note the spelling) you'll get hits for several websites that can give you some charts.
Thanks - I'm familiar with these from the FT, HL etc.Edited by ATG on Tuesday 29th October 15:44
what I don't understand is how this specific 10 year gilt yield chart is created.
is it a rolling value based on all guilts up to TR34 or is it constructed some other way.
also why 10 years? I know that most investors are interested in the shorter dated guilts say 25 & 26.
Also aware of the BOE sell off which they had as part of QE.
Greenmantle said:
Thanks - I'm familiar with these from the FT, HL etc.
what I don't understand is how this specific 10 year gilt yield chart is created.
is it a rolling value based on all guilts up to TR34 or is it constructed some other way.
also why 10 years? I know that most investors are interested in the shorter dated guilts say 25 & 26.
Also aware of the BOE sell off which they had as part of QE.
The word is Gilt or ‘gilt-edged security’, based on their security, since they are guaranteed by the government.what I don't understand is how this specific 10 year gilt yield chart is created.
is it a rolling value based on all guilts up to TR34 or is it constructed some other way.
also why 10 years? I know that most investors are interested in the shorter dated guilts say 25 & 26.
Also aware of the BOE sell off which they had as part of QE.
Different investors tend to focus on different maturities. It is not correct to say that most investors look at 1 or 2 year gilts.
QE was buying Gilts, QT is selling Gilts back to the market, hence increasing supply and reducing prices (increasing yields).
Edited by Sport_Turismo_GTS on Tuesday 29th October 22:12
The Bank of England calculates and publishes estimated gilt yield curves on a daily basis.
https://www.bankofengland.co.uk/statistics/yield-c...
Somewhere in the link describes the calculation methodology.
https://www.bankofengland.co.uk/statistics/yield-c...
Somewhere in the link describes the calculation methodology.
Good Plan Ted said:
But that’s pitiful against bitcoin, sp500, gold.
Has been but different tools for different jobs. Bitcoin is nothing other than fools speculating, IMO. S&P 500 - higher bond yields *might* put pressure on equities in the near term. Gold is admittedly having a great time. The thing with bond yields is you can lock in that yield (coupon) and if held to maturity you know what you're going to get back - without the volatility of the other asset classes.Phooey said:
Good Plan Ted said:
But that’s pitiful against bitcoin, sp500, gold.
Has been but different tools for different jobs. Bitcoin is nothing other than fools speculating, IMO. S&P 500 - higher bond yields *might* put pressure on equities in the near term. Gold is admittedly having a great time. The thing with bond yields is you can lock in that yield (coupon) and if held to maturity you know what you're going to get back - without the volatility of the other asset classes.The jumps today are bigger than yesterday. A few minutes ago the 20-30 years were within a whisker of 5%, they have eased down in yield just a little since.
https://www.marketwatch.com/investing/bond/tmbmkgb...
This time last year I think the 30 year was about 5% - I think even the 15 yr nearly got there - and I thought I'd missed the boat to lock in a certain part of my portfolio, but who knows where we go now. The gilt issuance is going to be way higher than under tories for the next 5 years.
As someone says above, there are certain tools for certain jobs. If you are buying individual gilts to hold to maturity and don't need to sell prior to that then it is "just" inflation risk to worry about.
https://www.marketwatch.com/investing/bond/tmbmkgb...
This time last year I think the 30 year was about 5% - I think even the 15 yr nearly got there - and I thought I'd missed the boat to lock in a certain part of my portfolio, but who knows where we go now. The gilt issuance is going to be way higher than under tories for the next 5 years.
As someone says above, there are certain tools for certain jobs. If you are buying individual gilts to hold to maturity and don't need to sell prior to that then it is "just" inflation risk to worry about.
Greenmantle said:
Thanks - I'm familiar with these from the FT, HL etc.
what I don't understand is how this specific 10 year gilt yield chart is created.
is it a rolling value based on all guilts up to TR34 or is it constructed some other way.
also why 10 years? I know that most investors are interested in the shorter dated guilts say 25 & 26.
Also aware of the BOE sell off which they had as part of QE.
Usually they are referring to the 10YR benchmark bond which is the particular bond closest to 10 Years to maturity. what I don't understand is how this specific 10 year gilt yield chart is created.
is it a rolling value based on all guilts up to TR34 or is it constructed some other way.
also why 10 years? I know that most investors are interested in the shorter dated guilts say 25 & 26.
Also aware of the BOE sell off which they had as part of QE.
Every country has outstanding debt ranging from a month out to 50 years and on occasion looking at you Austria 100 Years+. This is the Yield Curve. Short term borrowing is covered by Bills usually 1mth - 6mth in maturity and then bonds from 1year to 50years. As time passes the duration shortens and bonds mature and the cycle repeats.
Commentators and economists tend to refer to 2, 5 and 10 years for government bonds as the reference maturities as there are generally liquid futures contracts on these maturities. The 10 year is generally the most common maturity used when comparing borrowing costs between countries.
https://tradingeconomics.com/bonds
I believe that the current ten year benchmark bond is the TR 34 which is the UK 4.5% 07/09/2034 and the graph will usually show the evolution of the Yield of the relevant benchmark over time.
https://tradingeconomics.com/united-kingdom/govern...
This website is particularly helpful as it shows you prices, yields and the equivalent yield to maturity for a 40% tax payer across the entire curve. Remember gilts are CGT free so a much better investment than deposit accounts generally if you pick low coupon bonds. (less income, more capital gain if held to maturity).
https://www.yieldgimp.com/gilt-yields
Very much as HedgedHog says.
When governments want to borrow money they typically do it by issuing new bonds that mature at some standard point in the future, typically 2, 5, 10, 30 or 50 years in the future. These newly issued bonds are useful reference points in the bond market. Why? Two main reasons.
(1) And this is a somewhat silly technical reason. Their "coupons" (that's the fixed amount of cash they pay out each six months or year to investors) are typically very close to the internal rate of return the bond offers to investors. This makes their internal rate of return ("yield to maturity") a not-completely-hopeless way of expressing interest rates when plotted on a chart against the bond's maturity. It is still a pretty bad way of thinking about how borrowing costs vary as you borrow for longer and longer periods of time ... but it is good enough to be a rough guide.
(2) These newly issued bonds are initially heavily traded in the "secondary market", which is the name given to trading activity between investment banks and their clients (other countries' central banks and sovereign wealth funds, and pension funds, insurance companies, fund managers). This high volume of trading (known as "high liquidity") means it is easy to find out at what price one of these newly issued bonds is being bought and sold. And more importantly, it is easy to buy and sell large amounts of these specific bonds. You can pick up the phone to your broker and buy or sell many, many millions of dollars worth of these bonds almost instantly. That price transparency and liquidity makes owning these bonds fairly safe to the extent that you can get rid of them quickly, if you want to, and you know if you're getting a fair market price or not. That means their prices are not getting distorted by investors' fear of being stuck with an asset that they cannot price and cannot sell easily. That lack of trading risk means their prices are a rather pure measure of the value the market is attributing to a specific government's debt.
That's why these newly issued bonds are used as reference points or "benchmarks".
Typically a government sells its new bonds at an auction where the only participants are investment banks who pretty much promise to buy however many bonds a government chooses to issue. This auction process is the "primary market". The investment banks then sell the bonds on to the sorts of clients I mentioned above. For a while there is a fair amount of speculative trading in these bonds, but over time they get hoovered up by funds that intend to hold them for the long term. This means that the initially highly liquid secondary market trading starts to dry up and the bonds' prices become a bit less transparent and it becomes a bit harder to find someone to buy and sell large volumes of them. The bond is said to be switching from being "on the run" to "off the run" and it ceases to be such a useful reference point.
And then the government issues some new bonds, and the whole process starts again with some new benchmark bonds.
When governments want to borrow money they typically do it by issuing new bonds that mature at some standard point in the future, typically 2, 5, 10, 30 or 50 years in the future. These newly issued bonds are useful reference points in the bond market. Why? Two main reasons.
(1) And this is a somewhat silly technical reason. Their "coupons" (that's the fixed amount of cash they pay out each six months or year to investors) are typically very close to the internal rate of return the bond offers to investors. This makes their internal rate of return ("yield to maturity") a not-completely-hopeless way of expressing interest rates when plotted on a chart against the bond's maturity. It is still a pretty bad way of thinking about how borrowing costs vary as you borrow for longer and longer periods of time ... but it is good enough to be a rough guide.
(2) These newly issued bonds are initially heavily traded in the "secondary market", which is the name given to trading activity between investment banks and their clients (other countries' central banks and sovereign wealth funds, and pension funds, insurance companies, fund managers). This high volume of trading (known as "high liquidity") means it is easy to find out at what price one of these newly issued bonds is being bought and sold. And more importantly, it is easy to buy and sell large amounts of these specific bonds. You can pick up the phone to your broker and buy or sell many, many millions of dollars worth of these bonds almost instantly. That price transparency and liquidity makes owning these bonds fairly safe to the extent that you can get rid of them quickly, if you want to, and you know if you're getting a fair market price or not. That means their prices are not getting distorted by investors' fear of being stuck with an asset that they cannot price and cannot sell easily. That lack of trading risk means their prices are a rather pure measure of the value the market is attributing to a specific government's debt.
That's why these newly issued bonds are used as reference points or "benchmarks".
Typically a government sells its new bonds at an auction where the only participants are investment banks who pretty much promise to buy however many bonds a government chooses to issue. This auction process is the "primary market". The investment banks then sell the bonds on to the sorts of clients I mentioned above. For a while there is a fair amount of speculative trading in these bonds, but over time they get hoovered up by funds that intend to hold them for the long term. This means that the initially highly liquid secondary market trading starts to dry up and the bonds' prices become a bit less transparent and it becomes a bit harder to find someone to buy and sell large volumes of them. The bond is said to be switching from being "on the run" to "off the run" and it ceases to be such a useful reference point.
And then the government issues some new bonds, and the whole process starts again with some new benchmark bonds.
Sport_Turismo_GTS said:
The word is Gilt or ‘gilt-edged security’, based on their security, since they are guaranteed by the government.
Specifically, they are called "gilt-edges securities" or "gilts", because they used to be physical bits of paper that were decorated with gold leaf round their edges.(And the interim payments that a bond makes to its owner are known as "coupons", because the bits of paper I mentioned above used to have physical coupons on their edges that you'd cut off and submit as proof of ownership so you could get paid your cash.)
ATG said:
Specifically, they are called "gilt-edges securities" or "gilts", because they used to be physical bits of paper that were decorated with gold leaf round their edges.
(And the interim payments that a bond makes to its owner are known as "coupons", because the bits of paper I mentioned above used to have physical coupons on their edges that you'd cut off and submit as proof of ownership so you could get paid your cash.)
Indeed, I should have added that. I was more focussed on correcting ‘gilt’ versus ’guilt’!(And the interim payments that a bond makes to its owner are known as "coupons", because the bits of paper I mentioned above used to have physical coupons on their edges that you'd cut off and submit as proof of ownership so you could get paid your cash.)
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