Select Committee on Treasury Sixth Report



AuctionConventional gilts: Open to all bidders, although only GEMMs are allowed to make telephone bids — others can only make postal bids. Successful bids in conventional gilt auctions are allotted stock on a bid price basis, paying the price they bid. There is also a limited facility for non-competitive bids.
Index-linked gilts: open to IG GEMMs only (for competitive bids) and conducted on a uniform price basis, based on the minimum accepted price. There is also a limited facility for non-competitive bids.
BenchmarkA measure against which performance of the debt manager can be compared, which can take into account a variety of factors including cost, risk, portfolio structure and time horizon, for example. In order to create a benchmark, each component input has to be defined (such as cost and risk) in order for its neutral level to be determined. The debt manager then seeks to match (benchmark neutral) or outperform the benchmark, usually in regard to cost and risk although other targets can be specified (such as increasing the maturity of the debt portfolio)
Benchmark gilts Informal term for liquid stocks, usually with a large outstanding amount and a coupon in line with the prevailing general level of interest rates, which are used by participants in other markets to price other instruments of corresponding maturity, such as corporate bonds.
Bid/offer spreadThe difference between the buying price and the selling price of a gilt offered by a dealer.
Cash valueThe value of a gilt in the market.
CGBR Central Government Borrowing Requirement. The previous title for the CGNCR.
CGNCR Central Government Net Cash Requirement, which is almost entirely a cash measure of the difference between central Government receipts and expenditure (rather than an accrual measure, such as Central Government Net Borrowing)
Competitive bid A bid for a stock at a price stated by a bidder in an auction.
Conventional gilts Gilts on which interest payments and principal (including double-dated) repayments are fixed.
Conversion offerThe aim of a conversion offer is to replace existing high coupon, small issue gilts into current coupon, larger stocks of roughly similar maturity, and in so doing build up benchmark stocks and concentrate liquidity across the yield curve. Made on gilts with over five years until maturity and less than £5 billion (nominal) in issue, and offered over a period of three weeks from the initial announcement of the details of the fixed ratio of conversion to be made at the offer.
Coupon Annual interest paid on gilt holdings, usually in two equal, semi-annual instalments. Expressed as a percentage of £100 nominal.
CounterfactualA comparison of the outturn against an alternative scenario. The DMO uses what it describes as a "neutral counterfactual", by which it compares the yield achieved at auction of new issues over a determined period of time against the average yield of the three benchmark gilts during that period.
CRND Commissioners for the Reduction of the National Debt, formally responsible for investment of twelve public sector funds e.g. National Insurance Fund.
Destination stockThe stock which will be issued in lieu, following a switch auction or conversion offer.
DMO The UK Debt Management Office
Discount rate The annualised difference between the redemption value (on Treasury bills) and the purchase price of £100 nominal value of the bills, expressed as a percentage.
Floating rate gilt  Gilt issued with an interest rate adjusted periodically in line with market interbank rates.
Framework Document      Sets out the DMO's responsibilities, objectives and targets, relationship with the Treasury, and its accountability as an Executive Agency.
FSA Financial Services Authority.
GEMMs Gilt-edged Market Makers. There are GEMMs in both the conventional and index-linked gilt markets (referred to as IG GEMMs).
Gilt A UK Government sterling denominated, listed security issued by HM Treasury with initial maturity of over 365 days when issued. The term "gilt" (or gilt-edged) is a reference to the primary characteristic of gilts as an investment: their security.
IGs or Index-linked  Index-linked gilts whose coupons and final redemption payment are related to movements in the Retail Prices Index (RPI).
LiquidityThe greater the quantity of tradeable securities available and the more widely held the stock, the greater the number of market participants trading in the market, so the greater the liquidity of the market.
Maturity date Date on which stock is redeemed.
Maturity bracket Gilts are categorised into three brackets of maturity: Short, of 0 to 7 years; Medium, of 7 to 15 years; and Long, in excess of 15 years.
Maturity mismatchWhere the source and destination stock in a switch auction or conversion offer are in different maturity brackets, as determined for that particular operation.
MFRMinimum Funding Requirement
NILONational Investment and Loans Office
NDONational Debt Office
Non-competitive bid A bid where no price is specified; such bids are alloted at the weighted average price of successful competitive bid prices.
Nominal valueThe value of a gilt when it is issued—UK gilts traditionally have a nominal (or par) value of £100.
Primary marketThe issuance of stock by the DMO to GEMMs and end-investors.
OPGOffice of HM Paymaster General
PWLBPublic Works Loan Board
Redemption yield The rate of interest at which all future payments (coupons and redemption) on a bond are discounted so that their total equals the current price of the bond (inversely related to price).
Remit (DMO)The DMO's Remit is determined by the Treasury, and is the Government's financing requirement, less the net contribution from National Savings and short term instruments. The Remit states the planned sales of conventional gilts by maturity bracket, the amount of index-linked gilts to be sold and broad details of the issuance programme.
Repo Sale and repurchase agreement, a combined transaction providing for the sale and subsequent repurchase of a gilt.
Secondary marketWhere existing securities are resold or purchased by market participants.
Source stockThe stock which will be replaced following a switch auction or conversion offer.
Strips Separate Trading Registered Interest and Principal Securities; for some gilts which are eligible (i.e strippable), the coupon and principal can be traded separately.
Switch auctionIntended to build up benchmark stocks, and to prevent possible market instability caused by investors, especially index trackers, who would sell stock about to fall out of an index (such as the FT-A Fixed Interest 15 year Medium Coupon (Gilt) Index). Can be for up to £2 billion (nominal), and used for a stock where the amount in issue after the switch auction is above £4.5 billion (nominal) i.e switch auctions are used for a stock too large to be considered for a conversion offer. The source stock and destination stock are within the same maturity bracket (which are defined, for switch auctions, as 0-7 years, 5-15 years and over 14 years).
Tap The issue of a gilt for exceptional market management reasons and not on a preannounced schedule.
Treasury bill A sterling denominated instrument of up to 12 months maturity when issued, but normally less at a discount and redeemed at par, with no interest payable.
Ways & MeansThe Government's overdraft facility at the Bank of England Issue Department
Yield curve The mathematical relationship computed across all gilts between yield and maturity.

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