From the Guardian, Comment is Free:

there will be demand for UK government debt, just as much as there was demand for Greek government debt and most likely every other western government’s debt. Bond traders don’t boycott countries, they just demand a higher interest rate.

And to prove that I am the dullest man on the blogoweb, this from a research note I received privately:

The curren well-distributed maturity profile of outstanding gilts is beneficial in keeping debt interest payments relatively low; even with the market pricing in gilt yields rising to around 5.25% in 2013 and gross issuance of around £750bn over the next four financial years, the average yield on government debt only rises from around 4.1% to 4.4%.

This is a similar calculation to one I did in A Balancing Act (chart 7).  Low borrowing costs, long-maturities of gilts= no mad crunch-day for refinancing.  A gradual rise in our debt-interest burden from 3 to 5% of GDP is not the sort of thing that suddenly throws our ability to repay into doubt.  I tend to see the 1976 crisis not about a crushing level of debt as a real short-term financing shocker.

Bond Vigilantes take issue with Bill Gross on this one:

The view that the UK gilt market is one to avoid has some punch in the short term, but the consensus is exaggerating the risks the UK gilt market faces. Even if one agrees with the consensus, it is important to see if this view is priced into markets and when this will eventually come to an end.

And so too a Gilt fund manager:

But City Financial Strategic Gilt Fund manager Ian Williams says: “Universal sentiment in markets is very often wrong. Whilst many investors are underweight in gilts, we believe there is a plausible case for owning this asset class in 2010.

People like to cite Nouriel Roubini – also bearish on the UK – as an infallible sage.  But as Jeremy Warner points out, he can be badly wrong, and his timing is lousy.


2 thoughts on “Wise words on the debt

  1. I noticed you commenting here earlier:

    I’m wondering what you made of that post. Personally it seemed a bit all over the place.

    I mean this:

    “According to new-Keynesians, recessions occur because some firms are stubbornly unwilling to lower their prices in the face of a fall in demand. Workers quit their jobs and choose to take a prolonged vacation.”

    is what the Chicago boys were saying (I remember Delong lampooning them with “great vacation”, “great forgetting” etc).

    It also doesn’t seem to me to be the case that “all unemployment is temporary and unemployed workers will quickly find jobs” according to New Keynesians. Particularly with the worries about how long US unemployment will remain at 10%. That’s surely why people like Krugman want to see a second stimulus.

    He attacks the New Keynesians and says we should go back to the older variety. But then he says we shouldn’t use fiscal policy (getting quite emotive about it with the old grandchildren line). A contradiction surely?

    He calls for something to explain what’s going on now as well as stagflation, but how will going back to Old Keynesian economics help with that when it failed to explain the 1970s?

    And it is dishonest to say this:

    “Administration economists claim that the multiplier is 1.5.”

    Actually, ask them and they will say “It depends on what the government is spending the money on” i.e. tax credits/publics works etc.

    Sorry for ranting on your blog, but I’d like to know if that post seemed as off as I feel it was. Certainly not up to Wolf’s standard anyhow.

  2. But City Financial Strategic Gilt Fund manager Ian Williams says: “…we believe there is a plausible case for owning this asset class in 2010.

    To borrow a famous line, well he would, wouldn’t he? After all, he runs a gilt fund so he would like people to buy gilts through him!

    Otherwise a very interesting and sound analysis.

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