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Gilts Face Disruption During Olympics Too

Norma Cohen, Economics Corresponden, Financial Times
Monday, 2 Jul 2012 | 1:32 AM ET

As London braces itself for feared transport congestion when the Olympic Games start this month, the disruption looks set to hit an unexpected victim: the government bond market.

A detailed view of the prototype design of the new golden Olympic torch during its unveiling at St Pancras Station on June 8, 2011 in London, England. 8,000 torchbearers will carry the Olympic Flame around the UK during the 70-day relay, which starts at Land's End in Cornwall on May 19, 2012.
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A detailed view of the prototype design of the new golden Olympic torch during its unveiling at St Pancras Station on June 8, 2011 in London, England. 8,000 torchbearers will carry the Olympic Flame around the UK during the 70-day relay, which starts at Land's End in Cornwall on May 19, 2012.

The UK Treasury has called off its weekly gilt auctions for a four-week period between mid-July and mid-August, apparently because it is afraid that too many bond traders will be working from home – or not at all – during the Olympics.

With many of the largest banks – which make up the elite Gilt-Edged Market Makers Association exclusively allowed to buy securities directly from the Debt Management Office – dotting the transport routes to and from the main Olympic site, many employers are making arrangements for staff to work from home.

A spokesman for the DMO confirmed that the prospect of so few gilts traders being at their desks with trading screens switched on had caused it to take the unusual step of rescheduling auctions.

Such thin staffing raises the prospect of a “sloppy” auction that could force the Exchequer to pay more to borrow. “Why take operational risk when you don’t have to?” the DMO spokesman said.

The absence of new gilts auctions may have a serious knock-on effect, economists said. If, as expected, the Bank of England gives the go-ahead this week for another round of gilts purchases to help boost the economy, it may have to slow these down because of the Olympic effect.

Buying gilts in a market where no new securities are being issued could distort interest rates in unpredictable ways, economists warned.

While the regular calendar of gilts auctions shows sales of government securities nearly every week, and sometimes more than once a week, there are none scheduled for the period between July 19 and August 16. However, there is very heavy issuance immediately before and immediately after those dates.

The Olympics open on July 27 and close on August 12.

“It’s a ‘bums on seats’ issue,” said an economist at one of the UK’s largest banks which, like many of its counterparts, is based at Canary Wharf.

The station there is a key Olympics hub on the Jubilee underground line, and has been designated as likely to be “exceptionally busy” during the games.

Transport for London, the local government body, has warned regular users of that line that congestion may add as much as an hour to their commute each way. The same applies to stations at key points along the Docklands Light Railway and Central line, also heavily used by City workers.

Londoners have been warned to try to avoid switching trains at key stations that are normally swarming with bankers each weekday morning. These include London Bridge, where many commuters catch links to the Square Mile or Canary Wharf.


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