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Monetary theology [split off from Marcus dives again]

Gilts, bonds, and interest-bearing shares
NeilW
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Monetary theology [split off from Marcus dives again]

#396403

Postby NeilW » March 17th, 2021, 12:08 pm

Gan020 wrote:Oh well. The Bank of England are printing money at the rate of £4.5m per week and that runs to the end of December so that's around another £180m of liquidity to pump into the system yet.


What's the difference between a bank owning £180m of bank reserves as assets on their balance sheets, and £180m of Gilts on the balance sheets in your view? There's no change in the deposits, just the backing asset.

Since Gilts are endlessly liquid (GEMMS have to offer a price in any market conditions), the only real difference is the amount of interest paid.

The government is having to pay more and more to borrow yet


It has no need to pay anything at all. It could just leave the banks with additional bank reserve backing assets at 0.1%. It's entirely a policy choice. Write to your MP and tell them to stop being silly.

And of course it is only "borrowing" as an equal and opposite response to increased amounts of bank deposits, ie. people saving.

NeilW

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Monetary theology [split off from Marcus dives again]

#396408

Postby richfool » March 17th, 2021, 12:23 pm

A rather misleading headline isn't it? I wouldn't call a reduction from 0.5% to 0.4% a dive! (And particularly not so, against the background of interest rates generally).

This is the Lemon Fool, not the Daily Mail!! :roll:

didds
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Monetary theology [split off from Marcus dives again]

#396414

Postby didds » March 17th, 2021, 12:39 pm

richfool wrote:A rather misleading headline isn't it? I wouldn't call a reduction from 0.5% to 0.4% a dive!


20% loss?

I guess it depends on one's view of what "a dive" means etc :-)

dealtn
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Monetary theology [split off from Marcus dives again]

#396434

Postby dealtn » March 17th, 2021, 1:39 pm

NeilW wrote:
What's the difference between a bank owning £180m of bank reserves as assets on their balance sheets, and £180m of Gilts on the balance sheets in your view? There's no change in the deposits, just the backing asset.



The fact that bank reserves don't move in price but Gilt's do?

The fact that bank reserves are shortdated, effectively overnight instruments, but Gilts can be as long as 50 years.

The fact that liquidity in the Gilt market is a quantum less than bank reserves.

Have you ever worked in a bank, or more specifically in either the liquidity, finance, or reporting areas? If you really think a "bank" sees no difference you should ask someone who has.

NeilW
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Monetary theology [split off from Marcus dives again]

#396442

Postby NeilW » March 17th, 2021, 2:02 pm

dealtn wrote:The fact that bank reserves don't move in price but Gilt's do?


Bank reserves do move relative to other currencies - as anybody who as actually worked in a bank should know. Most banks being operative in more than one jurisdiction.

The liquidity in Gilts is guaranteed by GEMMS and the Bank of England - therefore they have the same liquidity profile as bank reserves. And they don't move very much at the short end where Banks hold their reserve assets due to the pull to the maturity. Hence why Pension Funds like longs and Banks like the short to medium end.

And the whole thing is a reflection of the belief of the market in the interest rate curve - forced into place by the Bank of England doing QE if necessary. And the market is just a waterbed of people playing push-me-pull-you.

So no I reject your argument. It is a micro position, not a macro one.

If you really think a "bank" sees no difference you should ask someone who has.


Head of Gilts Trading and Head of Sterling Rates Trading good enough for you?

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Monetary theology [split off from Marcus dives again]

#396447

Postby dealtn » March 17th, 2021, 2:25 pm

NeilW wrote:
dealtn wrote:The fact that bank reserves don't move in price but Gilt's do?


Bank reserves do move relative to other currencies - as anybody who as actually worked in a bank should know. Most banks being operative in more than one jurisdiction.

The liquidity in Gilts is guaranteed by GEMMS and the Bank of England - therefore they have the same liquidity profile as bank reserves. And they don't move very much at the short end where Banks hold their reserve assets due to the pull to the maturity. Hence why Pension Funds like longs and Banks like the short to medium end.

And the whole thing is a reflection of the belief of the market in the interest rate curve - forced into place by the Bank of England doing QE if necessary. And the market is just a waterbed of people playing push-me-pull-you.

So no I reject your argument. It is a micro position, not a macro one.


I have worked in a bank (as you know - and to a quite senior level), and accept reserves move with respect to currency. Thank you for adding an additional reason why reserves are different to Gilts from a bank perspective which is odd given your argument that from a bank's perspective they are the same!. To be fair I didn't introduce this myself as it is also the case that banks will hold foreign bonds too, not just gilts and indeed "credit" bonds such as bank and corporate bonds too.

If you go to a bank's statutory accounts, scroll down to the "risks" section (now obligatory) and you will see against bank reserves they will say "interest rate risk", and against gilts (etc.) it will say "interest rate risk", "currency risk", and "credit risk". This highlights, from the "bank perspective", which appears to be where you are arguing from, how differently they assess them.

Liquidity in Gilts is not "guaranteed" by GEMMs, in theory or in practice. In theory it is liquid, but within the confines of quoted price, in practice there are many times Gilts won't be quoted by individual GEMMs, and even if they were, that "guarantee" only exists within the operations of approved Gilt counterparties, which won't extend to every bank, let alone every counterparty. Even then a GEMM guarantee is only as good as the balance sheet, and business operations of that GEMM. Are you suggesting this guarantee is as good as the Central Bank?

You seem to be under the illusion a 2 - 5 year Gilt can't move in price. That doesn't stand up to the scrutiny of market reporting, even over periods where there is no change in interest rate policy. This is true long before "QE" which somehow you think relevant to the argument on how bank's see their assets on their balance sheet, or during "QE" (and after "QE" too!).

Reject my argument if you like, but it won't make it any less true, the same way you wouldn't argue a bank overdraft was the same as a tradeable bond, or a £ in someone's wallet was the same as one invested in a bitcoin wallet.

Assets come in many forms, as do liabilities, and that is recognised by banks (and their regulators) too. If you think that isn't the case, and that banks produce annual accounts of extraordinary length, and at some cost, for the fun of it, then you are happy to live with that illusion. It doesn't make it the real world though.

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Monetary theology [split off from Marcus dives again]

#396449

Postby dealtn » March 17th, 2021, 2:28 pm

NeilW wrote:
If you really think a "bank" sees no difference you should ask someone who has.


Head of Gilts Trading and Head of Sterling Rates Trading good enough for you?


Absolutely.

I have been both of those. 2 of my last 3 roles at a FTSE100 listed UK bank.

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Monetary theology [split off from Marcus dives again]

#396458

Postby NeilW » March 17th, 2021, 3:05 pm

dealtn wrote:Liquidity in Gilts is not "guaranteed" by GEMMs, in theory or in practice.


It's there in the contract with the DMO - and the regulation regime - which will involve the GEMM being taken over by the PRA if required and the Bank stepping in. Yet you continue to deny it despite it being pointed out to you in the documentation. The Bank is there to maintain the interest rate structure and is empowered to do whatever it takes.

Senior you may have been, but not senior enough to see the bigger picture clearly. Hence why I got what you say checked by somebody else senior who was less prone to trying to twist words and being captured by groupthink.

As to the risk reports in accounts, those are largely fiction. The National Loans Fund as a liquidity risk entry - despite being part of a group that owns the liquidity provider. They are like the barristers written opinion vs their oral opinion.

The actual risks run by a bank Treasury department are far more subtle, and hedged - which was way beyond the scope of the original comment and this board. If it was something that bank Treasury departments didn't do there would be no Gilts or Bills on bank balance sheets. And there clearly are.

NeilW

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Monetary theology [split off from Marcus dives again]

#396471

Postby richlist » March 17th, 2021, 3:52 pm

When interest rates are this low a small drop makes little difference.
For those of us with £85000 in Marcus a 0.1% drop is £7 a month......hardly worth loosing any sleep over.

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Monetary theology [split off from Marcus dives again]

#396479

Postby dealtn » March 17th, 2021, 4:40 pm

NeilW wrote:
dealtn wrote:Liquidity in Gilts is not "guaranteed" by GEMMs, in theory or in practice.


It's there in the contract with the DMO - and the regulation regime - which will involve the GEMM being taken over by the PRA if required and the Bank stepping in. Yet you continue to deny it despite it being pointed out to you in the documentation. The Bank is there to maintain the interest rate structure and is empowered to do whatever it takes.

Senior you may have been, but not senior enough to see the bigger picture clearly. Hence why I got what you say checked by somebody else senior who was less prone to trying to twist words and being captured by groupthink.

As to the risk reports in accounts, those are largely fiction. The National Loans Fund as a liquidity risk entry - despite being part of a group that owns the liquidity provider. They are like the barristers written opinion vs their oral opinion.

The actual risks run by a bank Treasury department are far more subtle, and hedged - which was way beyond the scope of the original comment and this board. If it was something that bank Treasury departments didn't do there would be no Gilts or Bills on bank balance sheets. And there clearly are.

NeilW


You can't speed, its in the highway code, but guess what in the real world ...

I have held those roles you refer to, and if you did speak to someone doing them at another UK bank (or currently at the one I worked for) I will know them.

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Re: Monetary theology [split off from Marcus dives again]

#396517

Postby dspp » March 17th, 2021, 7:11 pm

dealtn wrote: NOTICE

NeilW wrote: NOTICE

dealtn wrote: NOTICE


Moderator Message:
Following Alerts, this topic has been split. This is a warning. Do not attempt to persistently hijack other threads with your views on the theology of money or whatever else you may wish to call it. Similarly do not feed the Troll, just hit the Alert button and move on. I don't really care who started it, but it is very annoying to other Fools which his why they correctly hit their Alert buttons. If you wish to debate the matter with each other on a dedicated thread then here is OK, or you can start a new one.

But I say again - DO NOT REPEATEDLY HIJACK OTHER THREADS.

(I'm very sorry if I have swept up a few posts that were trying to help the OP)

regards, dspp


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