how the f is this even possible ? wheres the catch here...what am I missing..?http://www.nsandi.com/products/ggb/rates.jsp

Hahaha, this has been a topic of much lively discussion (see NucPhy, Macro Man, Total Derivatives, etc)... It's possible, there is no catch, you're not missing anything, but it's not arbitrage. It's just a strange mispricing.The big question for me is, rather, why... What sort of a signal is being sent here by the HMT?

Inflation?

incompetence ?

insolvent ?

Hopefully, you guys are all being funny here...

maybe HMT needs it to buy all shares in RBS and Lloyds ! Martinghoul please check your pm

in fits of laughter ?

We've had this in the US, too. My suspicion is that some banks are desperate for cash flow and ordinary depositors are the most gullible, least-costly source (i.e., daveangel is right). The current mark-to-fantasy accounting rules let banks pretend their assets are sound but mark-to-fantasy doesn't generate any cash to repay bondholders or cover withdrawals by depositors.These mispriced offers are also like the behavior of Ponzi schemes.

QuoteOriginally posted by: Traden4AlphaWe've had this in the US, too. My suspicion is that some banks are desperate for cash flow and ordinary depositors are the most gullible, least-costly source (i.e., daveangel is right). The current mark-to-fantasy accounting rules let banks pretend their assets are sound but mark-to-fantasy doesn't generate any cash to repay bondholders or cover withdrawals by depositors.These mispriced offers are also like the behavior of Ponzi schemes. T4A, since you're not a UK resident, you don't immediately see the irony of this... NS&I is not Northern Rock or one of the Icelandic banks. It is explicitly guaranteed and is a department of HMT, which makes it identical, in terms of credit exposure, to gilts, which trade at 0.75% yield. The key difference between gilts and NS&I bonds is that the latter are open to retail investors only with a max clip of GBP1mil.So the questions are not about the mispricing, but rather the rationale behind the mispricing. This has been discussed in detail on the NucPhy thread titled 'gilts - quick question'.

QuoteOriginally posted by: MartinghoulQuoteOriginally posted by: Traden4AlphaWe've had this in the US, too. My suspicion is that some banks are desperate for cash flow and ordinary depositors are the most gullible, least-costly source (i.e., daveangel is right). The current mark-to-fantasy accounting rules let banks pretend their assets are sound but mark-to-fantasy doesn't generate any cash to repay bondholders or cover withdrawals by depositors.These mispriced offers are also like the behavior of Ponzi schemes. T4A, since you're not a UK resident, you don't immediately see the irony of this... NS&I is not Northern Rock or one of the Icelandic banks. It is explicitly guaranteed and is a department of HMT, which makes it identical, in terms of credit exposure, to gilts, which trade at 0.75% yield. The key difference between gilts and NS&I bonds is that the latter are open to retail investors only with a max clip of GBP1mil.So the questions are not about the mispricing, but rather the rationale behind the mispricing. This has been discussed in detail on the NucPhy thread titled 'gilts - quick question'.Thanks for the clarification. The situation in the US seems analogous although not quite as strong as the NS&I-HMT link. We have FDIC-backed banks offering government-insured guaranteed returns to consumers that exceed UST rates.Again, my question is can NS&I get cash from anywhere else? Although linked to HMT, perhaps HMT is reluctant to funnel cash to NS&I for political reasons.

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: MartinghoulQuoteOriginally posted by: Traden4AlphaWe've had this in the US, too. My suspicion is that some banks are desperate for cash flow and ordinary depositors are the most gullible, least-costly source (i.e., daveangel is right). The current mark-to-fantasy accounting rules let banks pretend their assets are sound but mark-to-fantasy doesn't generate any cash to repay bondholders or cover withdrawals by depositors.These mispriced offers are also like the behavior of Ponzi schemes. T4A, since you're not a UK resident, you don't immediately see the irony of this... NS&I is not Northern Rock or one of the Icelandic banks. It is explicitly guaranteed and is a department of HMT, which makes it identical, in terms of credit exposure, to gilts, which trade at 0.75% yield. The key difference between gilts and NS&I bonds is that the latter are open to retail investors only with a max clip of GBP1mil.So the questions are not about the mispricing, but rather the rationale behind the mispricing. This has been discussed in detail on the NucPhy thread titled 'gilts - quick question'.Thanks for the clarification. The situation in the US seems analogous although not quite as strong as the NS&I-HMT link. We have FDIC-backed banks offering government-insured guaranteed returns to consumers that exceed UST rates.Again, my question is can NS&I get cash from anywhere else? Although linked to HMT, perhaps HMT is reluctant to funnel cash to NS&I for political reasons.Well, according to their charter, the funneling goes the other way. NS&I raises money for the HMT from retail investors, whereas the DMO does it from institutions.Raises all sorts of interesting questions, doesn't it?

QuoteOriginally posted by: MartinghoulQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: MartinghoulQuoteOriginally posted by: Traden4AlphaWe've had this in the US, too. My suspicion is that some banks are desperate for cash flow and ordinary depositors are the most gullible, least-costly source (i.e., daveangel is right). The current mark-to-fantasy accounting rules let banks pretend their assets are sound but mark-to-fantasy doesn't generate any cash to repay bondholders or cover withdrawals by depositors.These mispriced offers are also like the behavior of Ponzi schemes. T4A, since you're not a UK resident, you don't immediately see the irony of this... NS&I is not Northern Rock or one of the Icelandic banks. It is explicitly guaranteed and is a department of HMT, which makes it identical, in terms of credit exposure, to gilts, which trade at 0.75% yield. The key difference between gilts and NS&I bonds is that the latter are open to retail investors only with a max clip of GBP1mil.So the questions are not about the mispricing, but rather the rationale behind the mispricing. This has been discussed in detail on the NucPhy thread titled 'gilts - quick question'.Thanks for the clarification. The situation in the US seems analogous although not quite as strong as the NS&I-HMT link. We have FDIC-backed banks offering government-insured guaranteed returns to consumers that exceed UST rates.Again, my question is can NS&I get cash from anywhere else? Although linked to HMT, perhaps HMT is reluctant to funnel cash to NS&I for political reasons.Well, according to their charter, the funneling goes the other way. NS&I raises money for the HMT from retail investors, whereas the DMO does it from institutions.Raises all sorts of interesting questions, doesn't it?Indeed! Is HMT facing a cash crunch? Is HMT a Ponzi scheme? The analogous answer to the second question for the US would be yes due to all the unfunded government liabilities latent in pension obligations.

after all the 'bankers and their incompetence bashing' the government has decided to price it themselves. I was reading the link Martinghoul recommended. Guys could any one of you explain the Buoni Postali story. What happened there ? did someone major lift them left and right ?

I think the beginning of the story is here:How the trade workedI don't have a subscription to see the full article, sadly.