Lower gilt yields are a sign of panic not coalition credibility

Ministers are using low gilt yields as a sign of coalition "credibility", yet low yields are a sign of undermined growth, explains Cormac Hollingsworth.

E-mail-sign-up Donate

 

.

Ministers are using low gilt yields as a sign of coalition “credibility”, yet low yields are a sign of undermined growth.

Following worse than expected recession numbers last week, Treasury minister Chloe Smith rejected criticism the government’s policies were failing, citing the “credibility” that the coalition had secured.

Their evidence for this credibility is the low gilt yields. And on cue, the gilt yields went to a new all-time low last Friday. But the problem is that the more the coalition undermines growth, the lower gilts go. If growth was expected to rise, gilt yields would also rise. Unfortunately the same time, lower growth means higher borrowing.

 


See also:

No, Gideon, low gilt yields aren’t good news, and here’s why 16 Nov 2011


 

So it’s quite possible that lower gilt yields are more a sign of panic about the economy than sign of credibility about the deficit. And it turns out that every time the City raises its expectations about the total borrowing of the coalition over the course of this parliament, gilt yield falls.

Hard to believe? Take a look at our graph below:

Record-low-yields-on-record-high-borrowing
It’s time for the media to stop swallowing the credibility line and start holding this government to account.

 


Sign-up to our weekly email • Donate to Left Foot Forward

32 Responses to “Lower gilt yields are a sign of panic not coalition credibility”

  1. Duncan Weldon

    RT @leftfootfwd: Lower gilt yields are a sign of panic not coalition credibility http://t.co/3bGMw12v

  2. Josie S

    RT @leftfootfwd: Lower gilt yields are a sign of panic not coalition credibility http://t.co/3bGMw12v

  3. Chris Kelsey

    RT @leftfootfwd: Lower gilt yields are a sign of panic not coalition credibility http://t.co/3bGMw12v

  4. Martin Tiedemann

    Lower gilt yields are a sign of panic not coalition credibility, writes @CormacHolly: http://t.co/PGMgJROi

  5. Co-operative Party

    Lower gilt yields are a sign of panic not coalition credibility, writes @CormacHolly: http://t.co/PGMgJROi

  6. Sam French

    Lower gilt yields are a sign of panic not coalition credibility, writes @CormacHolly: http://t.co/PGMgJROi

  7. Shamik Das

    Lower gilt yields are a sign of panic not coalition credibility, writes @CormacHolly: http://t.co/PGMgJROi

  8. Pulp Ark

    Lower gilt yields are a sign of panic not coalition… http://t.co/RESgvcK2 #SustainableEconomy #chloesmith #coalition #muslim #tcot #sioa

  9. Alex Canfor-Dumas

    Simple, punchy and v. effective from @CormacHolly: rock-bottom gilt yields are not good news http://t.co/a5GqD77L

  10. leftlinks

    Left Foot Forward – Lower gilt yields are a sign of panic not coalition credibility http://t.co/BajI0Mq4

  11. Duncan Stott

    This is partly true. A lack of confidence in the private sector means investors preferring to lend to government.

    However, there are plenty of other nations issuing bonds too, and at much higher rates relative to the UK. This indicates that investors have relatively more confidence in the UK government than other countries.

  12. Lord Blagger

    Lower Gilt yields aren’t the result of panic. If that were the case, Spanish, Portuguese, Italian and Irish yields would be a low levels.

    In the case of Germany, low yields (zero) are as a result of supply and demand. Demand is very high, because they are safe, so there are large flows.

    In the case of the UK, its different in one respect. Demand is high, hence the low price. However, you have to look at who is buying? It’s the government buying its own bonds via QE.

    If that were the private sector, it would be making a false market and illegal.

    You need to explain why the government is the only major buyer.

    As for growth, it won’t solve the government debt problem. Do the maths. Government needs 150 bn a year to stand still. Who is going to pay that extra tax? What does that do for growth?

  13. cormachollingsworth

    You’ve shown why your counter example against yields and growth is not relevant. The reason why its different in Spain etc is the UK has its own currency.

  14. Anonymous

    So your answer is to go backwards rather than stand still. Well done!

  15. Anonymous

    They have more confidence that the UK government will need to continue to issue debt, yes. It’s seen as “safe”, but now VERY low-yield. The second is going to outweigh the first with many before many more years have passed.

  16. Wisewonderwoman

    Lower gilt yields are a sign of panic not coalition credibility, writes @CormacHolly: http://t.co/PGMgJROi

  17. Anonymous

    No, they have more confidence that the UK government will REPAY its debts

  18. Anonymous

    Sure, you push the party political line.

  19. Anonymous

    Don’t be ridiculous. My comment is nothing to do with party politics. It is a simple fact that the higher the risk of non-payment, the higher interest rate a lender/depositor will require to justify lending/depositing his money. Just look at the difference in the rates charged to prime and sub-prime borrowers or to mortgagees who borrow 50% or 90% of the value of a house.

  20. Anonymous

    Look at the rates charged to Germany and the Nordics.

    I’m not the ridiculous one.

  21. Anonymous

    Of course you are. Germany and the Nordics are seen as lower-risk than the UK, the Spanish, Portuguese, Italian, and Irish are seen by the markets as higher-risk than the UK. To say “look at the rates charged to Germany and the Nordics” in a debate about whether the lower rates charged to the UK than to the PIIGS reflects investor confidence in the UK is ridiculous.
    The perception that a risk is higher leads to a rational investor requiring a higher reward to compensate for the risk. That may be in primary school syllabuses under the next Labour government. That is why Osborne spends so much time trying to con the bond markets talking about austerity when he’s running a budget deficit of the order of £100 billion, uber-Keynesian expansionary fiscal policy to soften the impact of the bursting of Brown’s bubble and bust.

  22. Anonymous

    Con? CON?

    There are savage, life-destroying cuts being made under the austerity program. That he’s also increasing corporate welfare doesn’t make the fact that those cuts exist any less real.

    Moreover, he’s NOT spending in ways which stimulate the economy, it’s patching up holes and aiding his buddies.

    Typical double-dip denial there. It’s not at all ridiculous to see that the UK’s position isn’t so good after all by comparison with countries which have decent growth, while you maunder about how great hurting the 99% is!

  23. Anonymous

    Your comments are totally divorced from reality. Unlike certain people I have never, repeat never, been in favour of hurting the 99%. Over the last decade I have made myself unpopular by complaining about the increase in the unfair distribution of wealth since Margaret Thatcher resigned. Under New Labour the share of the nation’s wealth (excluding the totally notional value of owner-occupied houses) owned by the bottom HALF dropped by two-thirds. None of my previous comments have been party-political but this one is – New Labour made the poor poorer whereas the Tories made the poor (as well as everyone else) richer. Simple fact as published by HMRC whiole it was ruin by Gordon Brown. This is an additional reason, on top of Will Straw lying while claiming to be evidence-backed, for criticising the junk for which you appear to be a cheer-leader.
    I just try to tell/point out the truth and find it disappointing when newsbots refuse to listen.

  24. Anonymous

    You’re in favor of not hurting the poor, but punishing and torturing them, I see. My bad.

    “Simple fact” that you don’t understand the basics of the economy, a typical double-dip denier.

    And why should I listen to party shilling? Labour did very little about many issues, but their primary crimes were of omission. Tory ones are certainly of commission.

    (I’m a left winger, I wouldn’t vote for either…)

  25. Anonymous

    When did you stop beating your wife?

  26. Anonymous

    Funny, it’s almost like you’re trying to prevaricate.

  27. Anonymous

    Liar, liar, liar, liar.
    Would it really hurt that much to tell the truth once in a while?
    Every single statement in that post until (I’m a left-winger … is a blatant lie.

  28. Anonymous

    I see, you want to murder and drink the blood of the poor. Thanks for the official clarification.

    (If you’re going to play dumb I can keep this up. Or you could admit your actual agenda)

  29. Anonymous

    Moron
    I have already stated many times that I want people to be able to earn a living and that the rich should pay more tax than the poor. Are you unable to read?
    My agenda is that guys should be able to earn an honest living.

  30. Anonymous

    I’m quite able to see the agenda you’re pushing for, yes, thanks for asking.

    The rich pay “more tax” today. It’s still not remotely like their percentage of wealth, of course. It’s quite meaningless noise, without actual proposals, and given your clear hatred for the 99% I’d need to see full proposals and check them in detail before I believed a word of your motivations.

    I expect I’d find a bunch of racist, neo-liberal hackery.

  31. Anonymous

    Why should I waste any more of my time answering this “person” who chooses to make ridiculous lies all the time?

  32. Katrin Bennhold

    Lower gilt yields are a sign of panic not coalition credibility, writes @CormacHolly: http://t.co/PGMgJROi

Leave a Reply