Britain’s sovereign debt is not flashing red with bankruptcy risk. But its chancellor, and his successors, face a long and grinding slog to convince investors that gilts are once again a safe bet
Save time by listening to our audio articles as you multitaskAt the height of the chaos, Britain’s five-year borrowing costs were higher than those of Italy and Greece, two countries that have difficult relationships with their lenders. Although the markets are now calmer, the country’s sovereign bonds, or “gilts”, still trade at much higher yields than they did before the self-inflicted blow. Dario Perkins ofLombard, an investment-research firm, has dubbed this a “moron risk premium”.
Instead, government-bond yields reflect a wealth of interlinked factors. Chief among these is the expected future path for the interest rate set by the central bank whose currency is being borrowed. There is information about inflation ,growth and unemployment . There is a judgment about the central bank’s own hawkishness or dovishness.
One way to sharpen the picture is to take the government-bond yield for a given maturity and subtract the average interest rate the market expects from the central bank over that period. Known as the “asset-swap spread”, this is analogous to the credit spread for a corporate borrower. For the long-dated gilts that sparked Britain’s near-meltdown, the measure did indeed balloon in the last week of September, before falling back to lesser levels once the Bank of England intervened.
Australia Latest News, Australia Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
'Relief' in village where 'popular' mum murdered after guilty pleaIt was previously named one of the 'poshest' villages in Britain
Read more »
Tiny homes: Off-grid living allowed couple to take risksA couple say their mortgage-free, low-cost tiny home has allowed them to take risks.
Read more »
What to read to understand the Conservative PartyIt may be hard to believe, given the shambles of Liz Truss’s resignation, but Britain’s Conservative Party is the most successful election-winning machine in history
Read more »
Boris Johnson, Rishi Sunak and Penny Mordaunt: Who are MPs backing?East Midlands MPs are among Conservatives who have started declaring who they want to become Britain's next prime minister
Read more »