Bear Mountain Bull

What happens if you need to raise money — but there are no takers?

The U.K. failed to find enough buyers for 1.75 billion pounds ($2.55 billion) of bonds for the first time in almost seven years as debt investors repudiated Prime Minister Gordon Brown’s plan to stem the worst economic crisis in three decades.

Don’t think it can’t — or won’t — happen here in the US as well.

The auction failure comes as the Bank of England prints money to purchase government and corporate debt in an attempt to drive down borrowing costs as part of a policy known as quantitative easing. The Treasury gave the central bank authority March 5 to purchase as much as 150 billion pounds of assets. The bank bought 3.5 billion pounds of gilts and 85.5 million of corporate bonds today.

“It doesn’t help to have your central bank say it’s buying government debt and then when you’re selling it you can’t find enough buyers,” Kit Juckes, head of fixed-income research at Royal Bank of Scotland Group Plc in London, said in an interview today on Bloomberg Radio. “It doesn’t impress.”

And today the Fed started their buying spree, purchasing something like $7.5B in US Treasuries…

Update: BMB reader EDN mentioned the US auction in the comments. Here’s a little more info from Minyanville:

Stocks tumbled after a $34 billion, 5-year Treasury note auction went sour. According to Bloomberg, the sale drew a higher-than-expected yield, igniting concerns about the US flooding the market with debt.

Traders were already worried this morning because the 40-year UK gilt auction failed for the first time in over 7 years. “This is despite central banks in both countries purchasing and planning to purchase massive amounts of government debt,” said Minyanville Professor Tom Fant.

The yield on the five-year note drew 1.849%, higher than most expected. The Wall Street Journal reports that indirect bidders bought just 30% of the monthly auction, the lowest since December. The indirect bid, which measures demand from foreign and domestic institutions (foreign central banks included), is a closely-watched gauge.

Tomorrow the Treasury is scheduled to have another $24 billion auction of 7-year securities. This after selling $40 billion worth of 2-year notes just yesterday.