A tale of two auctions

Today, Brown's huge borrowing plans ran straight into the granite wall known as reality. The national debt office wanted to sell £1.750 million of 30 year old Treasury gilts. However, it was only able to sell £1,627 million. The auction was 7 percent short of its target.

This was the first time since 1995 that the UK gilts auction failed to cover the announced offering. More worrying for the Treasury, offered yields increased. The "tail", which measures the difference between the highest accepted yield and the average yield doubled.

In early March, the national debt office conducted a similar auction for £2,250 million. That auction received bids 1.4 times the offered amount, emphasizing the significance of today's demand shortfall.

Over the next two years, Brown wants to borrow over £120 billion per year to finance the biggest fiscal deficit since Hilter blew his brains out in the bunker. Today, Brown received a stark warning from the bond market. If the UK government wants more cash, it's going to have to pay for it in terms of higher yields.

The Bank of England can cut its policy rate down to zero, but bondholders want a proper rate of return.