Talk:Gilts

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I have just reinstated my earlier version, which just added information to an - unchecked - existing article. The said article did not concentrate on the gilt markets' essentials. I am perfectly aware that by simply reinstating an earlier version, I may have erased some valuable addings. However, I have the greatest doubts as to the general quality of what has been added - and thus, sadly, initially written - by User:EconomistUK, since he or she has erased perfectly valid information and replaced it with what cannot be anything else than the most blatant propaganda. I thus intend to check every part thoroughly. Htournyol 20:52, 9 October 2005 (UTC)

Blatant propoganda? Your edit of the article was highly POV - and the content on the background to the MFR belongs (if anywhere) in the MFR article (noting that MFR will be replaced). My latest edit attempted to what you had written and use published data on the gilt market to verify it. I admit the data could probably have been referenced - and that needs doing.

It may also be worthwhile splittng the article into two - one on gilts (what they are) and one on the gilts market. I'm reverting the artcile to prior to your edit so we can work this out. EconomistUK 07:56, 10 October 2005 (UTC)

Apparently gilt issuance has picked up tremendously since I stopped doing bond arbitrage in 2002 and retired from financial markets - although this does not show in LIFFE's gilt futures volume, which has indeed shrank further. Gilt futures trade on average 50,000 contracts a day, which is peanuts compared to the 1,5 million Bund futures. True, recent gilt issues now have outstanding amounts comparable to those of Bunds or OATs. However, this new found liquidity is extremely recent and the gilt market squeezed mightily at several times during the last 15 years, notably in 1998 and 2000, with swap spreads reaching levels (150bps) not compatible with a civilized government bond marked. Anyone prentending that until three years ago the gilt market was liquid and not a victim of structural imbalances and prone to endemic squeezes does not know what he or she is talking about, and certainly has never traded it. That the DMO would obviously like everyone to forget about the gilts' dissolute recent past is certainly understandable, from a commercial point a view, as their job is selling gilts to investors. However, structural factors remain : 1) this market is insular 2) pension-fund driven 3) and still subject to the MFR - about which the DMO's website is remarkably silent. Structural imbalances have even spilled unto the swap market, a remarkable feat since swaps are theoretically infinite : for the past seven years, 15y/15y forward swap spreads between euro and sterling have been negative to the tune of hundreds of basis points (sterling through euro) in spite of higher inflation. This aberration only corrected in 2005 (see: [1]). Htournyol 10:05, 10 October 2005 (UTC)

I am aware that the Gilt market has in the past been characterised as old-fashioned/quirky/insular - you just have to look at a Pember & Boyle description of one year in the 1970s iirc as being "all gas and gaiters in the gilt market". However, this is to some extent history (but worth pointing out as such). Nevertheless, the market has modernised significantly, particularly in the 1990s - the start of the gilt repo market in 96, the reduction of the ex-dividend period for gilts from 37(!) to 7 working days, changes to the tax regime, the introduction of the strips market (ok so it hasn't taken off that much for certain reasons), move to actual/actual daycount (98 I think), trading in decimals, move to 3m index-linked gilts etc. Also, the market is certainly less insular if you look at the latest ONS figures on holdings of gilts - they show that at the end of Q1 2005, nearly a quarter of gilts (23%) were held overseas.

As far as liquidity goes - I think it is worth looking at both liquidity and yields from a chronological perspective, rather than making a general statement. Turnover data suggests that liqudity is increasing at present and has probably been doing so as a function of increased issuance. Certainly, demand for gilts (and hence yields) were affected by MFR (Googling the DMO's website shows that one of their annual reviews has an article looking at the impact of the MFR - and which could form a useful starting point for a bit on the impact of MFR on gilts, although I'd refer readers for more MFR specific details to Minimum funding requirement) and other regulatory changes (such as FRS 17). The falling level of gilt issuance (inc 3G impact) at the time also played a part in reducing turnover at the end of the 90s - however, if you look at the auction history during the period that gilt issuance was lower - most of it was concentrated at longer maturities. Issuance also tends to be concentrated in fewer gilts these days - if you look back to the 1980s there were over a hundred different gilts (there are now about 50ish), and they all tend to be larger in size.

You're right to say gilt demand is particularly pensions driven - 60% of holdings of gilts are by pension funds and insurance companies. However, that doesn't necessarily mean that gilts are illiquid, but it may account for why for example index-linked gilts are less liquid than conventional gilts (given pension funds are typical buy and hold investors). It's also worth noting the recent issuance of a 50 year conventional and index-linked gilt. I think we both know enough about the gilt market to together produce a comprehensive and balanced article on the gilt market. There also remains the question as to whether, given the potential size of any article (and the current stuff on types of gilt) it is worth producing two articles: one on say gilts - what they are, how they work, and one on the gilt market, linked from the gilts page, outlining developments in the gilt market (which could start at intially in the 1990s, and be expanded further backwards, ideally all the way to 1694). EconomistUK 22:00, 10 October 2005 (UTC)

  • Itches :
  1. I cannot find reliable information as to the origin of the bonds' name - sure, as the DMO say in bold typeface, the term gilt-edged has indeed come to referring to the soundness of the bonds, but stories about the certificates at one point in history being printed on gilt-edged paper abound, not least here
  2. LIFFE do not have any record of the gilt contract having traded before March, 1986, which is quite consistent with both the distant memories I have of that time and a virtual impossibility of its actually pre-dating Big Bang - where did your 1982 date come from?
  3. I cannot find the actual date when the gilts' near monopoly on BoE open market operations was ended - it was sometimes in 2000, I think - which cost short end gilts a good 40 bps in premium over other instruments.
  4. Asset swap historical data seems to be difficult to find on the net outside Bloomberg - which, incidentally, is approximative at best. I have been googling for it but to no avail so far. A graph of the UKT 6% 2028's asset swap spread would definitely be a good addition to the article.
  • Also I am not entirely sure we need to split the article - or hairs. We can surely keep it down to manageable size.
  • As to pensions demand, I have found in a DMO annual report that UK pension funds held 70% of all gilts in March 2002, just before the recent issuance wave started and after gilt outstandings had been slightly regressing for 2 years... That was totally unprecedented, and made for a Potemkin market as pension funds do lend out bonds on repo to anyone with a good credit rating and the guts to short them ... As a) UK pension funds are still (luckily) over-invested in equities and b) the baby boom retirement wave is on us, which should entail more demand for bonds, pension fund regulations will still be of paramount importance to gilts even after the MFR is put to rest. Htournyol 14:20, 13 October 2005 (UTC)

Some more thoughts:

  1. The term gilts - have consulted a few books on the gilt market, the only reference I can find in a CSFB publication on the gilt market by Christopher Belchamber, which refers to the practice of producing stock certificates with gilt edges. Other material refers to their security - I think this is something that has got lost in the ether - probably worth mentioning both. May be worth having very potted history on gilt market – inc recent reforms.
  2. Long gilt future - I checked in (the seminal) guide to the gilt market by Pat Phillips - this refers to the long gilt future starting in 1982 (which also mentions short and medium gilt futures abolished 17 Jan 1990). It also gets mentioned in the DMO's investors guide if I remember correctly.
  3. I haven't got any asset swap data to hand - if we get any may be worth looking at another stock than 6% 2028 - it's smaller than most gilts of that maturity and hasn't been auctioned for the last 6ish yrs. Alternatively, in the meantime a chart of turnover (year by year) in the gilt market may be useful. There’s also a useful piece on market liquidity in DMO annual review in 99/00 (before the increase in issuance).
  4. OMOs – will see what I can find.
  5. Pensions – I think the article has to have a section on demand for gilts, which can talk about extensive demand from pensions funds for gilts, and likely future demand (despite the end of MFR), given other regulations inc. FRS 17, demographics, etc. Here also worth mentioning recent 50yr issuance & consultation. Illustration via a chart/table of pensions & investment co. holdings (I think they are grouped together) may be good. (Could also do something on overseas demand for gilts).EconomistUK 12:41, 20 October 2005 (UTC)
  • A different point of view.. As far as I can tell we're now getting into such detail in material for this article, that there is little to support the poor reader who does not have a financial background. Arguing about asset swap spreads seems pretty obscure if there is not even an article about credit spreads let alone asset swaps. Explaining the effects of changing demographics on the dynamics of the Gilt market also seems pretty vague if there isn't even a seperate entry for 'pension funds' or 'insurance companies'. Same goes for 'bond future'.
  • It seems that all this is to (dis)prove a point: is the market liquid or not. I completely understand Htournyol's attitude towards liquidity in the Gilt market. I know from experience how easily you get (obscenity removed) by gilt traders. The problem is though, that liquidity is a relative concept, which is very difficult to quantify. When do you call a market liquid? If you can get a (tradable!) 5 cent bid/offer in £10 mio? 3 cents in 100? Is the market illiquid because you can't get quotes over lunch (...)? Any evidence is relative and circumstantial. Why does a small futures market imply an illiquid market? Why does a large asset swap spread imply an illiquid market? I can see how you can make the argument, but it is not trivial.
  • Anyone fancies writing anything on Bunds or OAT's...? - DocendoDiscimus 14:28, 20 October 2005 (UTC)

I agree we might have lost sight of our readers - the article certainly has the potential to become far too technical for a reader without a financial background. I suppose the problem is that there is so much material we could put in an article on gilts (from what gilts are all the way to settlement, daycount conventions, gilt history etc), that you immediately feel like writing about everything and anything on the subject. So perhaps if we keep the article to start with to what gilts are, why (and in what quantity) they are sold and who buys them (and why they buy them), without getting too technical, it would be a useful start. As far as other government bond markets go, I think it might be good to build up List of government bonds and start some pages for each of the bond markets. EconomistUK 15:21, 20 October 2005 (UTC)

[edit] Title

This title violates WP:NAME, which normally requires singulars. It should probably be moved to something like Gilt (bond). Hairy Dude (talk) 17:08, 7 June 2008 (UTC)