My chart just amplifies his main point (click on it to embiggen). It shows the spread between 10 year gilt yields and their US and German equivalents.
You can see that these spreads have recently narrowed. Indeed, as of yesterday’s close, 10 year gilts yielded less than their US counterparts - something which hasn’t happened since late 2006. Both spreads are well below their post-1999 average.
This means that investors actually regard gilts now as unusually safe, relative to foreign bonds. They require a smaller than usual risk premium to compensate for holding them. Markets, then, have more faith in UK government debt (relative to overseas debt) than they have usually had over the last 10 years.
Let’s be clear what this means. It means markets don’t think the UK government is much more likely to default than the US or German government - though, granted, CDS rates are slightly higher for UK government debt than US or German debt. And it means they don’t think out debt will lead to inflation, or to a run on the pound. Any of these would cause spreads to be high. Which they are not.
This doesn’t mean they have confidence in the government. Maybe Osborne is right that yields are low because markets are confident a Tory government will reduce debt. Or maybe few people have faith in policy at all and it’s just that for everyone who’s scared of inflation (which would raise yields) there’s someone else scared of depression, which would reduce yields.
The bottom line, though, is that Duncan’s main point is right. Scaremongering about UK government debt is not shared by the markets. Of course, it’s possible that markets are wrong. But let’s be clear. Such concerns are, for now, deeply out-of-consensus.