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June 10, 2009

Comments

Mark Wadsworth

What do the spreads have to do with it, part from expectations of future interest rate changes/inflation?

Of course the UK is not going to nominally default on sovereign debt, it will just try and inflate it away, as they've done so many times before.

What is important is whether interest rates as a whole are going up or down. I'm convinced they're going to continue going up (but perhaps I'm wrong).

John

Chris, this is all interesting but I don't think you can say "investors think" or "the market expects" and have it mean anything when the biggest purchaser of UK gilts is the Bank of England, using printed money.

For as long as one branch of government is a purchaser of last resort in the market for the debt of another part of government, yields tell you what politicians want yields to be, not what the market thinks they ought to be.

Sam Langfield

John says: "...when the biggest purchaser of UK gilts is the Bank of England, using printed money"

Hardly. There are £713bn of gilts outstanding. The Bank of England has purchased, say, less than £100bn (I don't have the precise figure).

http://www.dmo.gov.uk/reportView.aspx?rptCode=D5E&rptName=46918827&reportpage=Market_Size

John

Sam come on. There's a difference between being the biggest purchaser of something and being the biggest owner of something.

The US is the biggest purchaser of oil, but it owns a tiny proportion of the 'oil outstanding' - that's mostly underground in the middle east.

Let's assume your figures are correct - I have no reason to believe they aren't -£713bn of gilts outstanding, and £100bn or so purchased by the Bank of England over a period of six months or so.

There are about 25 million houses in the UK. If I were to buy them at the same rate as the Bank of England is buying available gilts, I would have to buy 290,000 houses a month.

What do you think that would do to the price of houses, and therefore to the yield on a rental property?

dsquared

Chris, you can't just subtract one government bond yield from another and call it a credit spread - they're in different currencies. You need to do this chart based on the UK's dollar Eurobonds.

Guido Fawkes

Chris.

Can you deal with the point made above that the BoE is the biggest buyer of Gilts, suppressing yields.

What happens when that stops?

The Fed is basically playing this game as well.

Bob B

Is this really grim news if the UK economy was being boosted by the weak exchange rate for Sterling?

"Sterling has reached its highest level against the euro since the start of the year after data suggested the UK recession may be over."
http://news.bbc.co.uk/1/hi/business/8094729.stm

Bob B

Sterling is not only appreciating against the Euro. According to this in The Economist, it seems the change in stockmarket prices in Britain over the last 12 months hasn't done nearly as badly compared with the change in stock prices in other leading stockmarkets around the world:
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=13832379

Are the political doom sayers trying to lead us up the garden path?

rockinred

Oh dear."Embiggen". I do hope this is a joke. You may be an economist, but not even that excuses illiteracy.

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