As I write this, the UK government appears to be under continuing pressure because institutions in the City of London are selling their bonds, forcing interest rates higher.
There is only one logical reason for this selloff, which is the impending chaos that might be created by Trump‘s economic policies. No doubt, this has driven similar increases in interest rates in the USA. The UK is not alone in suffering this problem. The UK will not be alone in facing it to a much greater extent if Trump really does release the mayhem that he has promised. What will happen then? It is utterly unpredictable.
There is, however, a peculiarly UK dimension to this current sell-off, which might be worth mentioning. A few days ago, Elon Musk put a poll on Twitter asking whether steps should be taken to bring down what he called the tyrannical government of the UK. He was, of course, referring to Labour.
What we also know is that Elon Musk is bound to be popular with the boy traders who populate the City of London. They, like him, will think that money is the be-all and end-all of human existence.
They will, no doubt, share many, if not all, of his far-right and deeply prejudiced views.
Like him, many of them will loathe the Labour government, partly because it exists, and partly because it taxes, but most of all because they think it is socialist, which only reveals how little they understand the term.
And, like most of the followers of people like Musk, Andrew Tate, and their like, these City boys will be mindless in their adherence to the instructions given to them by their heroes. As a result, it is entirely plausible that if Musk wants Labour brought down, these City of London-based people will see it as their job to do just that. Given that the funds provided to them by their banks to trade with them provide them with immense trading power, the possibility that they are using that power to discredit Labour and so, they hope, bring it down cannot be excluded.
On January 6 2021, Trump staged a coup in the USA. Four years later, is a coup against the UK government being mounted from the City of London? In a world where nothing is too absurd to happen now, I think it entirely plausible that what is happening is deliberate, coordinated, and intended to create political difficulty for Labour that can be exploited by the far-right.
Who would now be brave enough to suggest otherwise?
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You could call it a couple, or if you weren’t living in some fantasy world you could call it a perfectly rational reaction to Labours policies. People dont
They’ve increased taxes dramatically which has crushed growth, but most of the money is going to civil servants wages and other areas which haven’t had any productivity growth for ages. Which means most of the spending won’t see a commensurate improvement in services or growth.
They’ve increased taxation dramatically on forms or wealth that drive investment. Pensions, inheritance, capital gains, non Dom’s. Unsurprisingly people are voting in their feet. The UK is basically uninvestable now. Let alone the forthcoming changes to employment laws.
Not only have they managed to do all that, they sparked an increase in inflation thanks to front loading their new spending and pushing increased costs on to businesses.
We could also talk about a hugely expensive and totally unrealistic energy policy driving the most expensive energy prices in the world.
The budget has killed growth stone dead but baked in much higher public spending for decades. Yet no reforms to actually make the public spending likely to achieve anything.
So if you think that investors are going to buy Gilts in the face of this, knowing that growth is falling, inflation rising and budget deficits are going to rise, you must basically be crazy.
But the you seem to think that printing money would solve the issue, with no adverse effect on sterling, inflation or gilt yields. So we can pretty much answer that can’t we.
You clearly have no clue what you are talking about.
Bonds are bought because the UK government is always able to pay, has always paid, and will always pay, and a fair rate of return is paid, which even with low growth is possible.
So, very politely, stop talkking nonsense. People – real people – want securoty and gilts provide it better than anything else.
And if you want growth in a situation where the private sector is clueless as to how to deliver it, of course you need a growing public secrtor because that is the only area where there is demand now.
I wouldn’t beother replying if I was you
The risks in the Uk, particularly inflation due to the policy actions of the government, mean that investors require higher bond yields to compensate themselves for the risk.
The fact that the Uk guarantee will not default on the debt is somewhat meaningless if your £100 redemption payment is worth peanuts due to inflation.
So the move in gilt yields is a natural function of sensible investors aligning their capital with the risks and returns available rather than your nonsense pretence about untoward actions of ‘city boys’.
Which you’d understand if you had the faintest idea about how city traders and fund managers operate. But you clearly don’t.
There is no risk
There is precisely zero chance a UK bond will not repay.
And inflation is near as dammit the same in all major economies.
Why do people like you talk such garbage?
I will pick on one of the points:
“We could also talk about a hugely expensive and totally unrealistic energy policy driving the most expensive energy prices in the world. ”
Which part of the policy? Certainly nuclear compares badly in terms of LCOEs (I’ll assume you know what those are) with PV and wind (or or off).
And of course the failure of Labour to take measures to reform elec markets.
https://www.theguardian.com/business/2025/jan/08/two-power-station-owners-to-get-more-than-12m-for-three-hours-of-electricity
I think you need to expand a bit on why Labour have a “totally unrealistic energy policy” – as far as I can see it has changed but little from the Tories (onshore wind excepted) and the new UK energy company has yet to make its mark. A failure to be more specific might incline people to think that you are an amateur – only able to make general, aimless, pointless and ill informed remarks. I am certain this is not the case and suggest you expand your arguments.
In the case of costly elec, apart from elec market reform, do you have other ideas? e.g. are you happy paying 25% of your elec bill to profit maximising monopoly network operators -with fully depreciated assets?
BB clearly is short for Brainless Buffoon.
“a hugely expensive and totally unrealistic energy policy driving the most expensive energy prices in the world”.
Frankly, I would be glad to see the back of Labour, Conservatives, the BoE, and from a Scottish perspective, the back of Westminster, which along with an ill-informed British electorate brought us the economic catastrophe of Brexit (which together lie behind at least half the problems you enumerate). But the expensive energy policy came with the appalling market reforms (but not investment reforms) long, long before Labour; and that has exposed Britain to a price regime over-biased to world gas prices (and to an energy market of fake energy suppliers who produce no energy; but to network providers operating a monopoly).
No wonder you do not wish to post comments under your full name; your remarks are asinine. I am becoming very, very tired of reading people pontificating about Britain, who represent ideas that have brought us to this sorry mess; and have learned nothing from the experience.
Bonds are owned by pension funds and institutional investors. “City boy traders” don’t move prices the actions of fund managers do. There was a poor take up on a recent gilt auction which is fund managers simply wanting a return to compensate them for the risks they see. It is a now a marketplace where prices are not corrupted by QE.
Oh come on, we’re not stupid. And we do know about bond loans. And we do know about futures. You’re the fool here by pretending otherwise.
I suspect that the row over ‘grooming gangs’ has also been coordinated. It has that fishy whiff of being a row manufactured for political purposes. Which is very disrespectful of the victims of the abuse.
And very threatening to the Muslim community, who have to live with a raised level of hostility.
The adult monetary theory you are not hearing from the BoE, politicians and mainstream journalists:-
“In terms of theory, MMT argues that taxes and bond offerings are not best conceptualized as funding sources for the Treasury, but rather as reserve draining devices to maintain price and interest-rate stability.”
https://www.levyinstitute.org/pubs/wp_788.pdf
I agree.
But also, this is Neo-liberalism making its own reality.
There are actually no bond vigilantes – that is until a weak government lets them create themselves.
That is why Neo-liberalism has done so well – because of the ‘liberalism’ bit which implies freedom – for them at least.
Do you think investors should be forced to hold UK government bonds against their will?
Yes
These are not invetsors. They are agents for savers. And those savers need protection from the recklessness of fund managers. You have a problem with that? Why?
My view on that Robert Fish is what is the risk?
The bonds will always repay because the Government – despite portraying things against its own interests – owns the means of money production – the Bank of England. The private sector even has a Central Bank Reserve Account whilst the public sector suffers cuts.
Bond holders and bankers have their backs covered by the UK government unlike real people. So what exactly are you bitching about?
Well I’ll tell you. What your gripe is that the bondholders cannot treat their bonds like shares and make a quick buck out them like shares perhaps? That is illiberal to you isn’t it – to make you stick to an agreement and so typical of greedy short term mindset that just wants to leverage anyone and anything to make a quick buck.
But that is why they are called BONDs and shares are called SHARES – one is more long term, the other short term – savvy? – and you know that and should respect it when you buy or not buy. It is the bondholders choice to buy or not – the government does not hold a gun to your head and make anyone do it – they are called Open Market Operations for a reason.
If you don’t like the terms, if you cannot accept the sovereignty of the bond issuer then don’t buy. But look at who does? And why? Because its safe – from people like you it seems. And long may that be so.
Bond holding is not day trading.
Prohibiting someone from selling an asset from they own – or forcing them to buy one – is fundamentally fascist (to use a word I know you like).
No, it’s called regualtion to protect investors – and most especially pensioners.
You are tbe extremist.
I have heard some commentators say that the UK has invested in and guaranteed lots debt to help Ukraine. With the ultimate hope of securing Ukraines resources and privatization. Is it possible that this is all coming to a head now Trump is in and Ukraine is loosing the war?
Did the same person tell you a million people arrive a week in small boats?
Many perhaps most gilts are issued for multiple years with fixed interest so fluctuations in yields and rates don’t affect them, at least in respect of the amount raised on issue or the interest payable. It does affect the price that can be achieved for new issues.
Perhaps the government should stop issuing gilts bonds to the market (and indeed halt quantitive tightening) for a period and see how that affect people looking for a secure place to put they money, such as pension funds. What is the City going to do without a supply of money from the government?
And remind me again how changes in interest rates changes government liabilities, e.g. for public section pensions. Looking at the whole of government accounts, might the government actually benefit more from increased interest rates (which reduces the discounted long term future liabilities) than it loses from increases in interest payable on new issues?
Andrew
Much to agree with
That would require ending quantitative tightening as well, of course
That may be enough
Richard
What would bringing down the government actually look like? It might actually be a good thing if the Labour MPs have to choose a new Prime Minister who might end up being a Long-Bailey or a Burgon type.
It could lead to a new election and a better set of politicians.
Neither are really ledership material. Sorry.
First they would have to pass the acceptability test and anyone with an ounce of conscience, principle or new thinking would be deemed unsuitable. None of those things are qualities prized in obedient servants of the Market.
I guess we are lucky in that we borrow in GBP, those Countries whose debt are in USD will presumably be hit hard by the $ rise? With Trump coming in it is going to be a rough ride, countries will need to think of strategies to deal with the different scenarios that may arise.
Spot on. Correct. They have a crisis. We do not.
Bond vigilantes. Registering their protest by driving up interest rates to restrict the ability for Labour to borrow?
Interesting number of trolls.
UK gov owns & thus controls the BoE. Gov also decides/influences on who sits on the BoEs various committees etc.
The BoE calls the shots ref banks/interest rate setting and bonds (to issue or not to issue).
The foregoing being the case (& I am basing it mostly on what has been written on these blogs) – why does the gov not act? tell the bank – this is what is going to happen.
I suspect we are in tail-wags-dog territory. Reeves, looks & sounds weak, all of the time.
Richard… this may seem incredibly naive but I’m trying to understand the mechanics of this.
If City institutions are selling bonds and destabilising the government who are they selling the bonds to and why are the new owners less preferential than the City?
They are shorting in the market – and gambling is what they do. They gamble using borrowed gilts. Those lending them are often the losers. Why organisations lend gilts beats me.
I guess you just don’t understand the government bond market as well as you think you do!
If these institutions are happy holding gilts to maturity (as you think they should be), then they do not care about interim price volatility and get paid an additional premium for lending their gilts.
So it’s quite obvious why they would do this – what is there for you NOT to understand?
What I know is that we need a small secondary market in gilts to provide for actual required realisations. The specualtive markets we have serves absoluetly no economic or social purpose at all. Why should it be encouraged?
“They are shorting in the market – and gambling is what they do.”
They might be but the the recent gilt auction showed demand isn’t there in relation to supply, it was barely covered. So conventional investors are demanding a bigger coupon. If you have contacts on the bond market that is exactly what you will hear.
You do realsie that no governnent needs to sell bonds? They only do so as a favour to financial markets. If the market does not want to make use of bonds at the rate offered, so be it. They can just use money provided by the Bank of England instead. That is economic truth.
Borrowing and lending of gilts is essential for the smooth running of the market and and lending gilts is a very sensible think for investors to do.
First, the borrowing/lending of gilts is simply the lending/borrowing of cash versus gilt collateral. The ability to deposit large amounts of cash taking gilts as collateral is important for the stability of the banking system. The vast majority of borrowing/lending of gilts (or General Collateral (GS)) is just simple money market activity. Everyone benefits from a good, safe money market.
Second, there is the borrowing and lending of specific gilts to allow short positions – the “Specials” market. This is essential to allow gilt market makers to operate. They have a duty to offer any bond to their clients, even if they don’t have it in their inventory; without the ability to borrow a particular issue then gilt market liquidity would be very severely impaired. Market makers (who need to borrow the gilts) pay investors (who lend gilts) for the privilege.
Now, I am guessing you are happy with this activity but not with “speculators”… but at a practical level it is hard to define what is “speculative”. Besides, I don’t really care – speculative selling might, in the short run, depress prices but speculators must sooner or later buy back their shorts – which would drive prices back up to where they started… or, indeed, higher. There are occasionally destabilising aspects to this speculative activity but in the gilt market these are easily contained by the BoE (if they wish to). At the moment, just ignoring things makes perfect sense; the moves are small and not disorderly or destabilising (completely different from the Truss debacle).
So, in summary, gilt lending enhances returns to investors, creates better market liquidity without any risk to orderly market functioning.
Now, in FX things are different. In gilts when there is a rush to short a particular gilt issue it will go “special” but this has absolutely no impact on the real economy and the Central Bank always has tools to keep the market under control. In FX, intense speculation can’t always be met with intervention (FX reserves are limited) and if met by higher interest rates, has an impact on the real economy. FX controls are the only tool here that can prevent speculation. Whilst out of fashion here in the UK they are alive and well in Singapore (yes, that country so beloved of neo-liberal market fetishists).
Clive
Thanks, as usual, but I might disagree with you on some of this.
I have no problem with lending with collateral if the collarteral offered is owned and not traded, even in the short term, by the person with a charge over it.
I do have a probloem with this:
“They have a duty to offer any bond to their clients, even if they don’t have it in their inventory; without the ability to borrow a particular issue then gilt market liquidity would be very severely impaired. Market makers (who need to borrow the gilts) pay investors (who lend gilts) for the privilege.”
Market makers should make markets by owning inventory. I also suggest, very storongly, that if they have not got that inventory they must be required to acquire it in very short order (days, at most). If not, there is no effective market pricing mechanism. Gilt borrowing does not help markets in that case, it hinders it.
And I don’t really buy the liquidity argument: market makers should make that, not gilt lending. If market makers cannot do this, they should lose their status.
I accept the point on FX.
But I think loans should be restricted for the reasons I note.
Richard
Looking at the usual metrics for judging auctions….
Auction was covered 3x – quite typical. Tail (difference between average accepted yield and lowest accepted yield) was 0.5 basis points – this is quite typical, too. So,nothing to see here.
Indeed, gilt yields were only a little higher on the day. This is NOT a gilt crisis.
Agreed
With respect to your comments about market making I am afraid that you your suggestions are completely wrong.
It would mean gilt market makers (GEMMs) carrying huge inventories in every bond and thus massive amounts of interest rate risk. Indeed, if they carried that much inventory they would have all gone bust in the recent rise in yields. GEMMs are typically are neutral with respect to interest rates and will have long and short positions in various different gilts. It is only the ability to finance long and short positions that allows the market to function.
I would go even further – most Bond trading firms will run a net short in long maturity gilts. Corporate bond books are almost always long inventory (mainly because the bonds are hard to borrow) so, to hedge the interest rate risk the Corporate bond trader will be short gilts. So, if the gilt trader is flat then the firm is net short.
Richard, it is the only way you can have a functioning liquid gilt market…. and besides, there is no real downside to having things this way.
OK, now tell me what 99% of gilt trades are for, Clive?
Sure, we need a secondary market for necessary realisations.
But what percentage of the market is that? And what is the purpose of the rest of the market?
I researched this issue in some depth a whole ago. When doing so it became very clear that the vast majority of holdings are incredibly stable and very long term. The rest were speculative. They were small, but traded a lot. But, what value do they add, except to the trader? If they don’t actually add value (and if the market makers can’t make money from them, as you suggest, who can?) why an I wrong? Why is this a market that needs to exist in the form it does? Wouldn’t Adair Turner’s comments about socially useless markets apply?
Serious questions
Richard
Serious answer. Most speculation is across short time frames, here is an example very typical of my time trading European Government bonds in Tokyo with Japanese customers.
I am flat. Japanese Life insurance company wants to but EUR 100 million of German Government bond X. My job is to keep the client is happy so I show a competitive offer and they buy. (If you keep going to Tesco to buy onions and they are either not in stock or absurdly expensive you soon stop going in and Tesco loses of other stuff – that is why I must always offer competitively).
At this point, I am short; to do nothing would be pure speculation – that is important to note. However, there is no offer on the Interdealer broker screen for this bond. What do I do? Well, I could (and would) call round any end clients to see if they want to sell but that is fairly unlikely and it would not happen that quickly and I would be at risk.
There might be a cheap offer on the IDB screen in 20mm in bond Y (similar to X) – if so, I will buy that. Next, I will probably buy some US Treasury bonds – 40mm (as experience tells be that German government bonds will move about half the move in US bonds).
When the German Government bond futures market opens in London, I will buy German futures 40mm, sell UST futures 40mm. I will then do a “basis trade” where I sell Bond Y, buy futures in a linked transaction. Finally, I will do another basis trade where I sell 100mm futures and buy 50mm bond X.
And finally, I am flat. Add up all this and I have traded USD 80mm and EUR 440mm.
So, Client activity 100mm, my activity 500mm. Is that 400mm of activity speculative? No, on the contrary, it is hedging and minimising risk.
Now, the fact that the Japanese Life Cos. are buying is good information that would not be available to all traders so I might scoop up 50mm futures for my book on the basis that there will be other buyers about. This is speculative, I hope it will be profitable and allow me to service the next client that wants to buy at a competitive price.
So, 100mm client trades, 500mm hedging trades with a 50mm speculative trade. So we could perhaps say that 10% client trades, 80% hedging and 10% speculative is the mix of a typical market maker.
Why do it? If I was only prepared to offer bonds that I owned (or could buy off the Interdealer broker screen) then the client would have had to pay a higher price. Frankly, I probably won’t make much, if anything, on that trade but information is valuable and I would hope to profit from it.
A long piece but this is (well, was) the life of a Government bond trader; technology has changed a lot but the principles are the same.
And literally, no hint of a benefit to society but a lot of value no doubt extracted from the trade at end cost to the real saver in the fund who is blind-sided to all this, but who bears that cost of all this wasted activity. Adair Turner was right. The uselessness of the City has rarely been made more clear.
No, the benefit to society is that the client (and their end savers) has achieved a better price than they could have got without my ability to hedge with all the resulting transactions.
Now, there may be better ways to do this – I have suggested on this blog a return to the “old days” of the German Government bond market where the price of bonds was fixed once a day and all buyers/sellers dealt at that price. But even this requires some speculators to take the other side if there is a mismatch of buyers/seller.
But the point of the of the last reply was to point out that the vast bulk of non-client activity is not speculative but hedging. Who is hurt by this risk reduction? And, how would you create a market that allows end users to transact without any speculators?
You give a hint of understanding the issue I am raising now. Other possibilities are available.
For example, the Debt Management Office could act as broker to save all this useless activity. It does hold bonds in reserve at all times. Problem solved, in its entirety.
What you don’t get is the irrationality and superfluity of something you spent your life doing. In effect there is a fraud (not criminal, but a form of deception, nonetheless) going on here. The trader represents to have a product for sale they do not have. And they sell it although they do not have it. Only then do they undertake a furious scramble to find it.
I can imagine accepting an order for something you do not have, and saying you’ll deliver when available. But the trader actually represents to gave things available now that are not in their possession, as you admit. And they sell despite that.
Is that really an honest market? Is that really creating liquidity? Is that really pricing properly? Is that really beneficial? I can ask all those questions and presume not. I can also say the activity is socially useless. I think it is.
I am aware I am told by many here I have no idea what I am taking about. I disagree. I am suggesting we have dysfunctional, risk laden, markets that can be used to operate against the public interest. Of course those working in them defend them. We all know a person cannot see the truth when paid not to do so. But that does not mean they are right. Nor does it mean I cannot question their version of events. That’s how change happens, and bond markets are by the admission of those trading not socially worthwhile – they trade in assets the readers coming here say people should not own. They think their activity not worthwhile. I am questioning why we do it in the way we do in that case.
This thread has come a long way from the original “is there a conspiracy?” (No, in my view) to being about how we want the gilt market to operate – the role of investors/market makers/DMO/BoE/speculators etc.
The current set up is far from perfect but I think discussions about how to improve them are best continued under another blog post….
That will happen, Clive.
We’d will have to disagree on the conspiracy.
On that the evidence is overwhelmingly in my favour.
“On that the evidence is overwhelmingly in my favour.”
What evidence? Richard you are behaving like a spoilt child, just back off this is the wrong fight…simply because you have no insight whatsoever and lack an understanding of the bond market.
I always recall people telling me I did not udnersdtand offshore. The insiders told me I was wrong.
I wasn’t. And they had to change, to my tune on automatic information exchange.
I was told the same about multinational corporations and offshore accounting, and that I just did not understand. They now all have to account to my tune via country-by-country reporting.
That’s why I ignore those who tell me I do not know. The more who turn up here like you – who have never been before – the more certain I am that I am probably right.
I don’t think this captures the mentality of the bond traders in the City of London. I’ve worked in the back office of investment banks my whole career and these guys don’t have a collectivist breath in their bodies and they respect no one. They might agree with Musk but they will only follow if they want to.
I assure you what every trader will do is look at the situation and work out how to make the most money from the situation, whether that’s buying up or selling off. Nothing else matters to these sociopaths.
You say that
I hear otherwise
But even if they did try something, there will be other market participants who will wonder what the hell is going on and take advantage.
The only influence powerful enough to stop this is a big, wealthy government. The incoming Trump administration could be up to something?
We’ll have to differ on this.
You are asking me to believe that markets have never acted in unison against a government. I think they do.
Richard, I am with AW1983 on this. In all my 40 years as a trader I have never observed any collusion to change government policy. I have seen individuals of a similar mindset seeing the same data and acting the same way… but bond traders really are just trying to make money from the flows they see coming through. Any effort to collude would fail as someone would “break ranks” to profit from getting out first and going the other way.
Where I might differ is that we bond traders are not all sociopaths!
So, there has never been any truth to bond vigilantes?
Really?
And there has never been price fixing, even though there is a lot of evidence that it did happen over the last 40 years?
I am finding this either amazing news – there is no such thing as a financial market with a mind of it own – so we can totally ignore it, meaning that this whole news story today is bunkum – or very hard to believe.
Which is it, Clive?
First, 2025 is a VERY different regulatory regime that 2005 (pre LIBOR fixing) or 1985 (when Bond vigilantes roamed Wall Street).
“Bond vigilantes” were not acting on collusion – they were traders and end investors of a similar mindset seeing the same data and choosing to head in the same direction; herd mentality and collusion are different.
There has been collusion over LIBOR fixing FX fixes and front-running… all unethical, now illegal – but none of them trying to move the market for more than a few seconds or (at most) minutes.
I will comment in the morning.
For what it is worth, I thought these exchanges, from RobC at 3.38pm on, was this Blog comment section at its best. Informative and instructive.
Sadly, as I notice too often, the comments in such an exchange do not receive the ‘likes’ they deserve. I thought I would post this, as a substitute for multiple clicking ‘likes’. With thanks to all.
Oh, and I am with Mr Parry on this one. Provided we really do stop the fixers (I am not sure we are hard enough when it does happen, but that is an aside). There is a rough and ready element to this, and I understand Richard’s austere piety; but if there is to be any market at all, this is what will happen as a minimum (regulation is required to ensure it doesn’t run amok). It has been like this since the Securities Market began in Exchange Alley (between Cornhill and Lombard Street), in the late seventeenth century. In a market for financial securities, time and money are not separable constituents; Governments depend on it.
You will note I agreed with sine of what Clive said.
I do not believe building markets on hedging is socially worthwhile. It is risky and hopelessly inefficient.
As I note this morning, the Debt Management Office could eliminate this need, and regulate markets.
Asking how reform might happen is not a waste of time when what happens is so self-evidently wasteful, risk laden, and with macro consequences.
It seems to me the problem is removing the crooks, and those intent on undermining the system. But how do you meet Mr Parry’s point that in order to match buyer and seller requirements by regulation (what precisely is the mechanism?), when nobody can carry the required stock, at call? Money is transactional by definition, and the ontology of money determines that its value varies with time. The time value cannot be erased, but it is the time value that enables it to function, and speculation is an inherent attribute of that function (whether or not it is misused).
The only money that carries no interest but can always be redeemed at face value is cash (notes and coin); but credit is a subordinate form in the hierarchy of money, subject variation in value on exchange. Cash can be turned into credit, and it can certainly be misused; I have always understood you to be a critic of cash, Richard; I am not, although I recognise it can be misused, but it seems to me that is part of its inherent nature. I am struggling to see how you can remove that inherent nature through regulation. However tight you make it, I fear it will not work; and I speculate you would simply increase the scale of the black economy; or create a desert of the economy.
You miss four things.
1) We are not trading money here, we are trading bonds.
2) Why do bonds need to be traded?
3) If no one can afford to carry a stock-in-trade of bonds isn’t it prima facie apparrnt that they are not tradeable, at least in a privately capitalised market?
4) Isn’t the only potential market maker in that case the Debt Management Office of HM Treasury? If they want a secondary market and there is no viable way of private capital now delivering one, they should proivide the servcie.
In response to the four points:
1) No, it isn’t money; but strictly, only cash is money (redeemable instantly at face value, with the best guarantee of redemption at the issue price, at any time). And with cash I am able to buy or sell bonds, if I wish.
2) I think we would both agree that the lowest risk investment available is Government. Gilts are one avenue, even for a small investor, through a commercial intermediary, or the DMO Gilt Purchase and Sale Service (but with no control over price). It may be that an investment is made with the intention of keeping to redemption; but peoplle find their circumstances change, and they wish to sell (which could be ata profit or loss).
3) Business seeks to use its capital most efficiently; it will always seek to minimise capital tied up in stock (in money terms, inert). Just-in-time was developed to cut stock holding capital for traded goods. Money is different, because ‘money and time’ are the same thing. The cost of inert money in a money market will, I suspect drive people out of business (before they go bust). Of course I am simplifying this, but surely that principle is the essence?
4) As for the DMO as the only dealer, the problem is it is does offer to deal for smaller investors in its dealer service. Here is the relevant rule in its Q&A:
“Can I specify a price or minimum price to sell my gilts? No, you are not able to specify the price or a minimum price at which your gilts are to be sold.” (Gilt Market, DMO Gilt Purchase and Sale Service).
I do not trust the private sector, and particularly not in the modern digital world, which transforms everything in nanoseconds; for very good reasons we can all see every day (My trust stretches as far as I can throw a refrigerator, and I have never been an athlete, and rarely lifted much more than a pen). My difference with you Richard; I think is that in terms of the whole economy and of the security of money, while we are all unquestionably dependent on Government (one proof of this is the desperation of the private sector to capture Government, in order to represent its interests above others); I do not trust Government either (about as far as I can throw that refrigerator I can’t even lift); because it takes no effort to see that Government’s are routinely captured by vested interests (the Single Transferable Party) – but I do need Government to work. And even if tomorrow you offer me a Government I can trust; the day after tomorrow, there will be one I can’t. That is The World We Live In.
Re 1) I completely disagree. Cash is a symbol of fiat currency – the only thing that is money. Cash is very questionbably money.
2) Noted
3) I do not follow your argument, or even the premise that money and time are the same: debt is not time although it has a temporal element, of course, so that is not true, in mu opinion. Government debt need never be redeemble, to make my point.
4) Noted. If I cannot trust the state I have to give up. The state runs the DMO. It can work.
In response:
1) I don’t think we should let the terminology lead the substantive issue. For example, here is the ECB on “money”: “Fiat money is declared legal tender and issued by a central bank. It can’t be directly converted into, for example, gold. The paper used for banknotes isn’t worth much, yet is accepted because it is widely usable and central banks work to keep the value of money stable”. It refers here to “money” and begins with notes, I submit because it provides a more precise description than other forms of credit described as money, but further down the hierarchy of money, and offering reduced security than central bank money. The ECB also observes on its website that it is developing a Digital Euro, and refers to that as “money” in this way: “We’re preparing for the possible introduction of a digital euro to ensure people have direct access to central bank money in digital form. A digital euro would allow people to pay anytime and anywhere in the euro area – like banknotes today, but digitally”. I note it refers to banknotes (only) to illuminate its description of central bank money. Central bank money is, in a banking crisis the only guaranteed money.
2) Noted.
3) You write “[money] has a temporal element”. The temporal element is inherent. The time element is expressed as interest, or a redemption date; it is permanent, and it is this inherent temporal element that makes it such a powerful tool of government. Money can be invested to earn interest, but note as in 1), in its purest form money (notes and coin – central bank money) does not automatically attract interest, and can always be redeemed for its nominal value. Yes, it need not be redeemed; but I referred to redemption because money can be invested, with a redemption date (and in fact you could attend your central bank, and redeem your central bank money; with another equal banknote, or coin).
4) I am open to consideration of the DMO as the dealer; but it isn’t now, and doesn’t have the background; so it is currently a hypothesis. And if it is going to deal, it is obliged to serve its client first, and I am not sure it is up to doing that (or whether that is what you intend). On the State, I am great deal more sceptical than you (I believe with good reason). To me there is always an unresolvable complex and difficult negotiation for the public, between the State and private sector, over the real interests of the public. We know we have been abused by the private sector for decades, to serve or protect vested interests (like banks just for an obvious example); but it has not taken long for Labour to fail the public. I do not believe we can ever fully trust the private sector, or the State; indeed I think that doubt is essential for the health of democracy. Trust should always be on a knife-edge in a democracy, or you will surely be eviscerated, filleted, spatchcocked and served up for lunch by one or the other.
1) We will have to disagree. Nothing that you quote supports your view, in the slightest. In fact, countries deliberately limit the use of notes and coin as money. They are tokens for money. They are no money itself. Only fiat currency is money. Central banks are clearly saying that.
2) Noted.
3) As I have already said, money can be issued in perpetuity. Your case is not made.
4) I deal in hypotheticals. That’s how change happens. UK politicians should take note.
1) You haven’t understood my point; because I am not arguing about the status of fiat currency. We actually agree about that. My conclusion follows.
3) There used to be perpetuities in bonds. But money is an IOU. You have said that often enough, and it is right. IOUs are redeemable; by definition. The fact that the central bank replaces a redeemed £1 banknote or coin with a £1 banknote or coin, highlights a circularity that only the authoritative currency issuer can do, still requires the issuer to obey the rules of an IOU with a redemption.
Thanks re 3
Re 1, we will have to agree to differ
And, by the way, you have now hit 5,000 comments. Thank you.
I suspect a period of silence form me is overdue; and would be met with general acclamation, all round.
Definitely not
Maybe not quite a coup, but the City is most definitely having a paddywack and is flexing its muscles. Primarily, I think because they smell blood and, combined with the antics of Trump/Musk et al, have decided that now is the time to really hurt Labour
I am picking up messages that suggest others share my view.
Collusion is illegal and all communications by traders are monitored. No mobile phones allowed on the trading floor, use of whatsapp is a sackable offence etc.. Really, it’s just not possible.
You said it was this morning. I will just note that fact.
Why have you changed your mind?
This morning? I did write something but I can’t remember what as it did not get posted.
At 8.38pm I said collusion would fail if tried…. but at 8.40pm note that it isn’t tried as the downside is so severe for traders.
I’ve come to this site after seeing a post with Richard’s comments in other media, to see if he was misquoted. For full disclosure I work at a UK based real money/long only asset manager.
It seems that he wasn’t and after reading the above I feel that some truths and general debunking need to be said.
1. The Musk co-ordinated attack theory.
This is simply nonsense. Just a conspiracy theory – one which betrays a complete lack of understanding of finance.
Gilt markets are huge. To move them as much as they have would need a lot of co-ordination from a significant number of people at different houses. Considering that over 7000 different institutions traded Gilts on just one of the various electronic trading platforms in the last month, this would be an achievement in itself.
However, in reality co-ordination simply doesn’t happen. All our communications are recorded and checked in real time. We aren’t allowed personal devices on the trading floor. Etc. To actively collude with other market participants is illegal and would cost that person a job, a massive fine, their license, career and probably jail time. It’s simply not worth it, given how easy it is to get caught.
It’s incredibly unlikely that hundreds of people at a similar number of firms would band together in this manner, so what Richard is saying is just the pure conjecture of a ill-informed conspiracy theory.
Besides, why would people need to co-ordinate when this trade has been so obvious for quite a while now. They’ve been underperforming since the budget basically. Investors have been selling their Gilts well before Musk got involved.
Which leads nicely on to….
2. So why are Gilts selling off so aggressively, more than peers?
I know a lot of people will say things like “Trump” and “everything else is selling off as well” so let’s deal with that first. There is some truth in that. But that does NOT explain why Gilts are some of the worst performing bonds in the world at the moment.
The real reason is the fiscal. It’s a complete disaster thanks to Labour and the Budget, as well as various other Labour policies.
The budget borrows an extra £142bn over this parliament – and still ends up with a smaller economy and lower real living standards than would have been the case under Rishi Sunak. They’ve front loaded spending now for a fairly small potential boost to GDP growth but deferred any fiscal consolidation. It takes real incompetence to borrow/spend more and still manage to generate weaker outcomes even by their own forecasts – which at ~2% GDP growth look incredibly optimistic. They’ve also given themselves basically no room to maneuver in terms of fiscal space before they have to either cut spending (which will fall on investment spending inevitably, not current) or once again raise taxes.
This is before you consider the inflationary aspects as well. This budget is inflationary in ways other than simply through the direct effect of increased government spending. And as we all know, higher inflation means higher yields.
~ A lot of extra spend has gone directly public sector wages. Without reform to the underlying at all. Hardly likely to be good for productivity and likely to be only the starting point.
~ Business taxes (NI) are going to slow growth and kill jobs. Businesses are already putting up prices to compensate.
~ Changes to other taxes (Cap gains, Inheritance, Non-doms) have all chased money and investment away. This has a direct effect on GDP but also confidence and the balance of payments (which is also a massive problem – more later).
~ Forthcoming employment laws seem to be aimed squarely at making the cost of employing people higher and making it more difficult to remove people when necessary. Again this has a direct effect on investment, growth and confidence.
Already you’ve got a lot of reasons to wonder why on earth anyone would buy Gilts – especially when the market is already overweight.
But then you can add in some more ideology driven policies. Someone above mentioned energy policy. It’s a disaster. The UK already has the highest prices in the world at about $400 per MW/h. Four times greater than most of Europe or the US. It makes any large scale manufacturing and a lot of energy intensive services near unviable in the UK.
Then they’ve self destructed even more by banning new North Sea oil (again destroying jobs, investment and tax revenue) and betting everything on wind and solar. Now in the long term, wind and solar will be viable (indeed, our firm is heavily invested in both) but not by 2030. Simply put, there aren’t enough ships that can handle offshore installation at the pace required in the world to do it. That’s before you consider the ~£300bn investment you would need into the grid just to get the energy to where it’s actually needed.
Based on these policies, we roughly expect UK energy prices to increase by about 25% over the next 5 years in the face of roughly flat global prices. Again affecting inflation and growth.
So you have a situation where the new government has delivered a budget which somehow manages to reduce growth (and thats before you account for their fantasy projections), increase inflation and make any potential return on investment lower through much higher taxation. Outside that the policy mix is fairly shambolic, with little to nothing that might improve growth either long term or short term.
Investing is a relative value game, so why buy Gilts when the outlook is poor and there are so many other things you can invest in instead?
3. The twin deficits
Not only does the UK run a large budget deficit, it also runs a large current account deficit. The twin deficits are the third worst in the world.
This means in practice that the UK needs to attract foreign investment flows constantly. But thanks to the fiscal situation, the incompetent people running government and a few other factors, it’s harder to attract those flows.
Government doesn’t really have any direct control over this necessity. It’s a hostage to global financial markets here. The government can’t print dollars. This means that bond yields will keep creeping higher until they are attractive enough that investors think that the risk of holding them is once again met. Doesn’t look like that is going to happen for a while given both the global and local situation.
4. Some other points.
There is a lot of talk from Richard and others about Gilts being safe. Depends what you mean by that, and I think that what he is saying (that you can never lose money owning them) is utterly false except in the most basic nominal terms.
I would hope we can all agree that inflation affect the value of money through it’s purchasing power. £100 today is worth a lot more than in 10 years time even with quite marginal rates of inflation.
So sure, if you buy a Gilt for £100 now you might get that £100 back, as well as some coupons along the way, but unless that bond offers a real rate of return you will actually have lost money in real (inflation adjusted) terms. That is before you consider the mark to market losses as yields go higher.
The UK does not offer particularly high real yields (though they are at least positive now) compared to peers. So again, why invest here when you can get better elsewhere?
I also see Richard says interest rates should be cut.
This would probably decrease short term rates but at the cost of a weaker currency and higher inflation. So long term yields (where the DMO actually issues) would likely rise, not fall, as the effect of currency and the view that the BoE is not serious about containing inflation, balance of payments and the above real rates issue all take effect.
He also says that the government can simply print money. This is quite honestly nuts. Base money supply would explode, confidence in sound economic management would disappear, the currency would collapse and bond holders would head for the hills sending bond yields sky-rocketing. That’s before the inevitable inflationary spike.
I also see Richard says investors should be forced to buy Gilts. For their own good basically. Apart from the massively authoritarian nature of this, you can’t force people to buy things. Foreigners own 35% of the Gilt market at the moment and try telling them they can’t sell. They’ll simply never buy again. I think this is really code for forcing people into poor investment choices to give the government even more of their money.
I could go on but I think I’ve covered enough. This has got nothing to do with Musk and everything to do with sensible people making informed investment decisions based on the information available – which is almost uniformally bad thanks to the actions of this government. I’m by no means saying things were perfect before but somehow they’ve made the Tories look competent by comparison.
It also says a lot about Richard that rather than dealing with the reality of the situation he has resorted to peddling conspiracy theories and myths. I’m not sure if it is because events are challenging his high tax/high spend/debt doesn’t matter world view and that is unacceptable to him so an alternative narrative must be created or down to a more basic lack of understanding and experience
OK, let’s stop the nonsense and deal with the real world.
Six major US banks all quit the US net-zero alliance together yesterday to appease Trump. But you say collusion on trades would be impossoble to appease Musk. Sorry, but I don’t believe you.
And nothing Labour is doing is anyway causing risk to markets – there is a reason why gilts are called risk free, and they are. Fact. And is there serious infaltion risk in the UK? Not from domestic sources, no. The Bank of England agrees, if you read everything they have published.
And remember – we do not need gilts. They do not fund the government – they withdraw funds created by the government from the market. But I very strongly suspect you would deny that fact.
As for energy prices, that’s the consequence of a rigged market, as discussed here often. It should be resolved. It is not an issue that canno0t be resolved easily.
But what you never mention is the role of QT. Mysteriously you forget £100 billion of totally unnecessary bond sales a year in all your so-called analysis. In that case I read what you say for what it is – political diatribe of absolutely no credibility at all.
And I note this:
“This has got nothing to do with Musk and everything to do with sensible people making informed investment decisions based on the information available – which is almost uniformally bad thanks to the actions of this government. I’m by no means saying things were perfect before but somehow they’ve made the Tories look competent by comparison.”
I am no lover of Reeves, but thank you for conforming there is a conspiarcy after all – because that is exactly what you have done. No wonder I and most people think the City the enemy of democracy. Labe have made mistakes, but they are small – except in the minds of every City trader who so happens to agree with Musk this week.
And I note you did not have the courage to give a name on this comment. Don’t call again.
You should, perhaps reconsider.
GB sounds like he is in the business; to use his real name could be career threatening. I use my own name now I have retired.
The points they make are views widely held in financial circles (but not universally). They expresses them in a civil manner and not allow them a hearing on this blog would leave the debate poorer.
I will comment in the morning.
The pinion he offered was total nonsense. How can you form a view on this ignoring the role of QT? No informed person could, so what was said was not considered opinion. It was diatribe.
Some nonsense,,, but not entirely.
Yes, let’s shall we?
Let’s remember that you are the one claiming that there is a Musk led conspiracy across the markets to bring down the Labour government. And that Labour is doing everything so well that none of this is their fault.
It’s laughable.
Gilts are described as the risk free curve. RELATIVE to other instruments. That does NOT mean they are risk free. You can still lose money owning Gilts. Even if they don’t default which I agree in nominal terms is near impossible. In implicit terms though you can easily have your money inflated away by government and lose a lot. All it takes is some negative real rates.
Given (looking through your older posts) you seem to have thought Gilts were a fantastic investment when they yielded 1%, I guess you have lost a large amount.
Inflation might not be heading to the post pandemic highs again, but it is heading up well above 3%. Possibly higher depending on other factors. That affects your real returns. You seem to think it’s not from domestic sources. So where is it coming from then? If you look at headline vs core….it’s all coming from core. I.e. domestic price pressure. Mostly it’s coming from services. But had you actually looked at the data you’d know that.
As I explained in my original post, it is the actions of this Labour government that have led to a loss in economic confidence and their policy mix and the budget have locked that view in. The general public don’t think they are competent – why would those in the financial markets think vastly differently. It’s just we actually have huge amounts more data and research to help form that view. To claim that the budget has been a success when it literally drove growth off a cliff is simply crazy.
I’m not going to get deep into the energy market debate, but the cost of Miliband’s energy program is well north of £300bn. Even if that was a good use of capital (which is questionable at best) there simply isn’t the capacity to install those offshore wind farms, solar panels and most importantly the grid infrastructure in 5 years. You can’t magic up deep sea piling boats out of thin air for example. So it will not happen even if the financing was available. QED domestic energy prices are going to rise a lot.
If Gilts don’t fund government, other than taxes what does? By your comment about withdrawing funds from the market I am going to guess you mean some form of money printing MMT style nonsense. Gilts are called “cash” for a reason. They are interchangeable in banking terms. Nor does printing money solve the balance of payments issue. Like I said, the government can’t print dollars. Not that printing pounds would be a good idea either.
QT is a discussion topic. Stopping it might slow down the sell off in Gilts but it fundamentally doesn’t much change the situation. The twin deficits are enormous and will have to be funded by large Gilt sales. Or more tax rises. The government might save a couple of £bn by doing so but at the cost of higher inflation. it would also be a massive sign of weakness to the market that things are out of control. I’d guess that if they stopped QT early you would see short rates go higher (as more cash needs to be placed which would prevent the BoE cutting. You would also probably see the back end rally (yields lower) in the short term but then the poor fiscal dynamics would take over again and rates would head higher. But in your simplistic, uneducated world, relying on literally no experience of financial markets at all, you think that ending QT, cutting rates and printing money would be a panacea.
“I am no lover of Reeves, but thank you for conforming there is a conspiarcy after all – because that is exactly what you have done.”
Honestly, what are you talking about? I said that the markets have been selling Gilts for months now, since the budget. Well before Musk ever said anything. The majority of people share the view that Labour have taken a poor but improving situation and driven it off the aforementioned cliff. They’ve done this not because they dislike Labour but because of the evidence of what the economy is doing and is likely to do thanks to Labour’s decisions. Mostly they’ve made huge mistakes, often on a purely ideological basis. We have a fiduciary duty to our investors (mostly pensioners) and that means making sounds investment decisions. Not playground type stuff because we don’t like the political party in charge.
That’s not a conspiracy theory. That’s just logical. But as I say, I’m pretty confident that you are the one peddling conspiracy theories.
As Clive says I haven’t posted my full name because of work. Plus frankly I don’t trust someone like you with it. I get the feeling you and GDPR haven’t been acquainted properly.
Clive is also right when he says these views are widely held. indeed there was quite a lot of relief when Labour won, initially. That quickly evaporated though based on what they have done. Crashing an economy will tend to do that.
Thank you fur making three things clear.
First, you are long term familiar with the far-right view of this blog.
Second, you are familiar with MMT and deny the reality that all central bankers agree with now – money and funding works as it suggests. That has to be true when they have rejected the loanable funds model if banking. You prefer a model of economics that is a fantasy. That is what I am exposing.
Third, you question the need to invest to tackle climate change.
In other words, none of your criticisms come from a rational economic perspective. They come from the perspective of a person why might support the Musk world view. It’s good of you to clarify that.
And for the record, I would never disclose your name. I said you were too frightened to do so.
I will post more to explain my position soon.
Note: As editor I deleted this comment. It violated the moderation policy for being both repetitive and irrelevant. I do not have time to deal with time-wasters, most especially deliberate ones. GB is n ot blocked. But he has to have something useful to say to get on here again. Richard Murphy
Why don’t you actually post what I wrote rather than censoring things and let other people decide?
I’d also say that nothing I said was directly repeated and all of it was directly in answer to your reply.
Clearly you are too embarrassed to actually engage in reasoned argument and have had to resort to deleting posts and telling yet more lies about why you have had to.
Go on – post what I wrote – I challenge you.
You have made your position clear.
You are just another City troll, deeply ignorant of macroeconomics, his money works, hating MMT as it would expose the futility of your economics, thinking you’re very clever who thinks I will never have heard what you have to say before, and offering right wing nonsense.
Let me summarise my reaction. I think you are an oafish, ignorant bore of the sort who would probably speak very loudly in company, probably believing that as a trader you rule the world. A pure Muskite in other words. Exactly why bringing the City down would contribute greatly to well being. I block such people. You are added to that list. Time wasters, trolls and bores are not welcome here.
“A lot of extra spend has gone directly public sector wages. Without reform to the underlying at all. Hardly likely to be good for productivity and likely to be only the starting point.”
Spoken like a true banker. What exactly have Bankers ever done to improve their productivity to earn HUGE bonuses on top of excessive salaries? But God forbid that someone in the public sector who has had their wage held down year after year to well below inflation should start to have some of that gap closed.
And what does “reform” mean in the context of public services such as the NHS or teaching? I can assure you the the NHS has adopted drastically new ways of treating people over the years and are held back by lack of capital funding for new equipment, and by inefficiencies caused by blockages due to not being able to discharge people in a timely manner. And also by working in hospitals with acrow props holding up ceilings, buckets collecting rain when it leaks etc. If they were able to work in modern hospitals with the latest equipment their productivity would be much improved but the previous 14 years of Conservative Government starved them of funding.
Thank you.
Maybe these bakers want us to hedge public services, undertaking 80% of the activity to pretend there is a service that does not actually exist, as it seems they do. That’s how they define productivity.
The wealthy and powerful would never tolerate a real UK socialist government.
We know Mountbatten actually considered a military coup against Harold Wilson, Tony Benn was vilified and dubbed the ” most dangerous man in British politics” and Wilson and Callaghan had to water down policies to make them palatable to unelected wealthy and powerful groups.
Corbyn was smeared, millionaire own newspapers carried stories that the military top brass planned to resign en mass if Corbyn were elected to power.
In our supposed democracy, it seems that power resides with a small minority of wealthy , self interest groups to the detriment of the vast majority of us.
What a self-righteous prick you are – zero experience of the gilt market and yet willing to criticise people who do this for a living.
What’s even more sad is that you have an expert, Clive Parry, who is a regular on here, frequently trying to correct your lack of understanding in a nice way and not abusing you the way you abuse others, and yet you fail to acknowledge his expertise.
GB points out the same thing that other people have pointed out previously – the fact that you are guaranteed to get your £100 back when your gilt matures is irrelevant when that £100 could be near worthless due to inflation.
But again you refuse to accept this basic logic which is driving markets ‘in the real world’ and instead choose to spout a nonsense conspiracy theory.
Perhaps it’s time for you to retire properly, or at least focus on tax which is one area you do actually have some experience in?
I note you language.
I also note you agree with GB that no rational person would buy bonds, let alone hold them.
And yet, every bond issue is sold.
And people do hold them to maturity.
And so it is you and GB who are fantasising, not me. I am dealing with the world as it is. You are assuming a supposed rationality that says it cannot exist. That, of course, is what neoliberal economics does as well. It too deals with a world that does not exist but which its adherents would like to imagine does.
I am trying to explain the real world. The problem for you is that you aren’t. One of us is rational here, and it is definitely me.
Unfortunately we do appear to a large extent to be at the mercy of bankers. By choosing to be a banker I think we can be fairly certain that 98% of them will be signed up Tory supporting neo liberals – and in today’s bipartisan world they will look at anything that Labour do through those spectacles – reinforced by their daily reading of extreme rightwing media. So maybe not a formal conspiracy but they are like a flock of starlings, all wheeling round together in one direction.
[…] noted yesterday my suggestion that the supposed crisis surrounding gilt prices might have been created by those in […]
[…] comments I made here yesterday and on Radio 2 about the possibility of there being a degree of coordination in what is happening […]
I note that GB does not mention taxation in your suggestions and tax has always gone hand in hand with MMT.
The same with CD. So as a result, since they do not understand tax and MMT they are therefore scared of inflation. The fear is through their lack knowledge maybe on that?
Broadly my view has not changed. If people – even the very reasonable and amiable Clive Parry – wish to make a career/take an interest in or dabble in the ‘bond market’ then that’s their business. But personally I don’t know why it should exist at all in the way that is does other than to make money out of money. Why do these bonds need to be traded? Who does it benefit? Why? And also, if pensions schemes have these bonds and with the actuaries roles so narrowly defined (maintaining the value of the fund at any cost) then there has ot be a better way to provide for pensions?
Maybe if we had better pensions and pay, there would be less of an attitude in trying to maximise the financial value of every asset like longer term financial instruments and stuff like housing. Bonds could truly becoming instruments for saving; houses could be used just for living in. Life would be a lot more simple. We worship money because obviously no one seems to have enough which given that it is man-made .
There is also documentary evidence of those in the City rotating out of short termist markets and into the more longer term bond markets and bringing their short term attitudes with them. Markets are dominated by short-termism it seems to me, everywhere – grab as much as you can, whilst you can.
At the end of the day for me at least, all I see is titanic and mendacious struggle for the money supply in this country between the market and the issuer of that money supply. It is a struggle that seems to benefit no one at the end of the day unless you have really deep pockets or want to become a ‘player’.
CD and GB do not seem to also recognise the heterodox nature of this blog which is to ask questions and challenge orthodoxy.
All excellent questions PSR
You seem unaware that taxation is already at its highest level for over 40 years and higher taxation is the opposite that you would seek if you wanted to encourage growth.
Hence the MMT solution is bollocks.
Of course as a non-tax payer you’re obviously going to be in favour of taxing ‘other people’.
It’s funny how the fact that you don’t understand the bond market isn’t going to stop you making comments about it! Perhaps you should stick to the things you do understand?
You do know that growth in government servcies is a direct contribution to growth, don’t you?
And that redistribution always fuels growth, don’t ypu?
So you also know your comment at current levelo of tax in the UK (low compared to most European states of similar type, which is why weare in trouble) is just wrong, don’t ypu?
So why did you write nonsnese here?
Thank you. I’ve been scratching my head for years to understand the benefits to society of bond trading. Still am!
We need a bond market. Owners of bonds do need to buy and/or sell from time to time and the ability to do this easily, quickly and at a fair price is highly prized by them. There is a lot of “pass the parcel” that goes on but it is what supports a liquid market.
Why did I trade bonds? Well, I fell into it by accident and I quite enjoy it. First, it is an endless study in human nature and ingenuity; fear versus greed and a constant struggle to innovate/improve. Second, it teaches humility (yes, really); I am wrong almost half the time… but that is OK I just need to be right 55% of the time…. as long as you recognise your mistakes and get out quick. Third, I sat next to some very smart people for many years and had interesting conversations; most of the time there is little going on in the market so there is time to talk. Fourth, it has kept me off the dole queue. Fifth, providing liquidity to end clients IS a (slightly) useful activity.
We need a secondary market
The Treasury and BoE operate in it.
So there we have it: they could p[rovide a bid/offer spread and that’s all that’s needed.
Probloem solved and vast amounts of wasted activity comes to an end.
The original question was “is there a coup?”. It was asked because Richard could not explain the market moves in any other way. Several people, including me, are saying (a) in fact, not THAT much is happening and (b) that what IS happening is explained by orthodox argument.
Now, there are alternative views to the orthodox, neo-liberal view of the world – indeed, this blog is all about exploring those possibilities. My views are unorthodox and I certainly do try and contribute practical solutions to changing the way the monetary system works. That will, no doubt, continue.
But, “we are are where we are”. Prices are driven by investors/traders that take an orthodox view of the world and they have been selling gilts and sterling to some extent based on that view. They might be misguided; they could/should be countered by better policy (both government and BoE)…. but the moves can be easily explained without resort to “conspiracy” or “coup”.
Again, we will have to differ.
I had a ring round reliable people I know – OK, academics, people I have worked with and so on this morning. All agreed with my basic hypothesis. These are not lightweight people. In politcal economy terms I am clearly hitting a theme, just earlier than most people.
Well that was all a very interesting exchange to read over my toast and marmalade this morning. My thanks to all contributors
A fascinating thread.
My only exposure to the world of Bond markets was as a Member Nominated Pension scheme trustee. Like a new MP, there was not requirement to be an expert to take the job on, just a commitment to try to lean. We attended many meetings with investment advisors and bond managers and what became a recurring theme was the contortions they went to in order to impress their peers with jargon and terminology with absolutely no appreciation of the knowledge levels of others in the room.
We ended up playing BS bingo with the constant interchange of the terms debt, credit, bond, gilt, treasury, linkers, …. These traders may be bright but had no awareness of their audience. The best laugh we had was when one very bright advisor was tasked with trying to teach us trustees how LDI worked. The look on her mentors face when out of sheer frustration with her trustee students slow uptake, she let slip and described part of the process as a bit like gambling and putting a bet on.
I feel for MP’s and ministers of any party who will be desperately trying to keep up with this and I can imagine that whether they agree with his politics or not, a number have learnt a great deal from Richard’s posts. When the Truss thing happened, I can imagine this was one of the go to places for a quick reminder of what this Bond thing is all about.
Thanks