BS Fixed interest rate accounts

Then to whom does the money paid for gilts in an auction go, if not to the Exchequer?

In message , Terry Harper writes

It goes to the exchequer, but I said 'existing'. I think you were quoting the current yield of gilts which have five years left to maturity. The interest rate paid by the government on these existing gilts, as opposed to new issues, is not the current yield but the yield as determined by the original issue price which could mean the government is currently paying 4% or 15% on the money it originally borrowed.

The interest rate (called the coupon) paid by HMG on a gilt is whatever percentage that was originally stated of the basic price of the gilt, i.e.

100 (par). However, if the coupon is, say 10%, then the gilts trade at a figure that is much higher than par because basic interest rates are much lower than that and people are willing to pay over the odds to get a good rate, but the interest they are getting on their investment is obviously much lower. Also, if they've paid over the odds, they have to remember that they'll only get back par if they hold the gilt to maturity.

Rob Graham

In message , Rob Graham writes

Yes, but the 'rate paid for their money' by HMG is actually the actual amount divided by the auction/placing price. So in your example, if the gilt is issued by auction and the average auction price is 90.9 pence then the Govt are paying 11% for their money.

No, I was referring to the recent auction of 2009 stock. I haven't got the advert to hand, but your figures quoted looked correct to me, and that rate of interest is what HMG is currently having to offer in order to get the vast amount of gilts sold that it needs to balance its budget. Apologies for a long sentence.

Sure.

Rob