GBP 1, 640, 000, 000, 000 - British debt at 50 year high and growing fast

**tomtomagain** · 23 November 2016, 11:49

Originally posted by sasguru View Post

Interesting times

When were times not interesting?

**sasguru** · 23 November 2016, 11:50

Here is the full text of that FT link, its a month old, nothing substantial has changed.

"Overseas investors led a sell-off in British government bonds on Monday, pushing long-dated gilts towards their biggest monthly loss since at least 1992 as renewed anxiety over the government’s pursuit of a “hard Brexit” saps international demand for UK assets.

Volatility has spread from the currency market to the debt market in recent days, pushing the benchmark 10-year gilt yield, which moves inversely to price, to its highest level since the UK’s EU referendum in June, and reversing the post-referendum bond rally.

Long-maturity UK government debt has been hit particularly hard in recent weeks: factoring in sterling’s decline, long-dated gilts have in dollar terms tumbled 10.25 per cent since the start of October. This outpaces even the losses at the depths of the financial crisis and if sustained would make it the worst month since at January 1992, when Bloomberg data starts.

“There is little doubt that foreign investors have been driving these moves,” said Nikolaos Panigirtzoglou, global market strategist with JPMorgan Investment Bank. “And their dwindling appetite makes sense. Why buy an asset class that is going through this sort of adjustment period.”

Concern that Prime Minister Theresa May will prioritise control over immigration rather than seeking access to the European single market has cast a shadow over the pound and gilts since the Conservative party conference two weeks ago.

On Monday, the 10-year gilt yield, which moves in the opposite direction to the bond’s price, jumped as much as 12 basis points to 1.22 per cent in morning trading. That is the highest level since June 24, when the shock of Britain’s vote for Brexit triggered a global rally in sovereign bonds as investors rushed for safety and bet on new central bank stimulus.

However the sell-off in gilts eased during the afternoon, with yields easing back to 1.12 per cent, while sterling was little changed against the dollar at $1.2180.

Monday’s sharp gilt sell-off follows a similar move on Friday, when Mark Carney, governor of the Bank of England, said the central bank was prepared to see some “overshoot” in its inflation target. Fears of inflation, which make a bond’s fixed payments less appealing, have been stoked by the 18 per cent decline in the pound against the dollar since the EU vote in late June, while the falling currency has wiped out gains for international investors.

“Sometimes a market move makes no sense, but this isn’t one of those times,” said James Athey, fund manager at Aberdeen Asset Management. “We are in the midst of a change in investor outlook.”

For gilts, the move lower in prices sent the 10-year yield above its 200-day moving average, a closely watched level that some traders believe will encourage further selling.

Trading volumes in gilts have been markedly higher this month, with the average daily sums traded in benchmark 10-year gilts £5.6bn, from £1.7bn before the EU referendum, according to Trax, a MarketAxess company.

The vote for Brexit helped UK government debt outshine rival sovereign bond markets over the summer, with the yield on the 10-year gilt falling from 1.37 per cent on the eve of the June 23 vote to as low as 0.51 per cent in August.

However, Mrs May’s announcement this month that formal negotiations on the UK’s exit from the EU will start by the end of March has spurred the unwinding of the rally.

While sterling and gilts have been hurt by the political squall over Brexit, the FTSE 100 has benefited as the dollar earnings of London-listed multinationals are enhanced. However, on Monday, the FTSE 100 retreated 1.1 per cent, easing from the record high levels it reached last week.

It is unusual for developed bond markets to sell off in parallel with the currency, a phenomenon more commonly associated with emerging markets, not an advanced economy like the UK. Morgan Stanley calculates that since 1993, 10-year gilts have on average returned 0.2 per cent a month when sterling is climbing, and 0.43 per cent when it has depreciated.

In contrast, struggling developing countries often see both their currency and bond markets sink in tandem, as central banks are forced to raise interest to fight the subsequent inflation bout often caused by foreign exchange depreciations.

Morgan Stanley’s analysts doubt this will be the case in the UK, pointing out that the Bank of England is able and likely willing to ignore a temporary acceleration in inflation, as it did in the wake of the financial crisis.

However, the US investment bank warned that a scenario where foreign investors reduce their UK bond purchases “could pose a significant threat to the gilt market and aggravate the UK’s balance of payment situation. The political uncertainties stemming from Brexit means it is not inconceivable”. Morgan Stanley’s analysts therefore recommended investors bet on the Gilt sell-off continuing. "

**NickFitz** · 23 November 2016, 11:51

Good job they've spent the last few years fixing the roof while the sun shines

**jonnyboy** · 23 November 2016, 11:51

£1.6T? I thought the national debt was much higher than that - the dept of fiscal studies said it was around £1.74T a couple of weeks ago. I would not be surprised to see it well over £1.8T come this afternoon.

**NickFitz** · 23 November 2016, 11:58

Originally posted by jonnyboy View Post

£1.6T? I thought the national debt was much higher than that - the dept of fiscal studies said it was around £1.74T a couple of weeks ago. I would not be surprised to see it well over £1.8T come this afternoon.

Don't they have several different ways of measuring it, which they choose among depending on whether they want to make themselves look good or somebody else look bad?

**sasguru** · 23 November 2016, 12:01

Originally posted by NickFitz View Post

Don't they have several different ways of measuring it, which they choose among depending on whether they want to make themselves look good or somebody else look bad?

Either way for a country with little manufacturing industry of its own to speak of and which has just created huge uncertainty with its largest trading partner, it's not a good situation to be in*.

*that could be understatement of the century of course

**jonnyboy** · 23 November 2016, 12:01

Originally posted by NickFitz View Post

Don't they have several different ways of measuring it, which they choose among depending on whether they want to make themselves look good or somebody else look bad?

Yep - good point. Its the tinkering. Its like CPI verses RPI verses CPI-H. They can take the figure between bond closure and bond sale, which shows an incorrect reduced figure, or they can factor out some types of debt/bonds to reduce the figures further.

**sasguru** · 23 November 2016, 12:14

Originally posted by zeitghost

Lies, damned lies, statistics, govermint statistics, Thatcher's unemployment statistics, Gordon "One Eye" Brown's statistics (speaking of fixing the roof in good times), Bliar's "people I've killed" statistics.

But one thing's for sure - the debt is fooking huge

**BlasterBates** · 23 November 2016, 12:32

90%....that's very bad indeed, particularly as its deficit is increasing, France has its deficit under control. Greece went bankrupt at 120%
Germany has low debt and runs a budget surplus and is quite capable of bankrolling the rest of the EU when the chips are down.

Hard Brexit is now not an option otherwise the UK will be at the IMF within 3 or 4 years and the EU can name their price on the transitional deal, which will be a really sh*te one.

GBP 1, 640, 000, 000, 000 - British debt at 50 year high and growing fast