The glossary entry on bonds has, finally, been published. Just follow the link. The draft I published a week or so ago was amended slightly after discussion with Clive Parry.
Clive then suggested that a second entry on bond markets was required and prepared a draft, which I have edited and now published as well. Again, just follow the link.
I am grateful to Clive for his input into this process.
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It would be interesting to know how many numerate people make a living from the margin they get trading government bonds. I don’t have a problem with corporate bonds as there’s an incentive for the issuers to keep the margins tight.
There do seem to be a lot of people having a party who could otherwise be teaching maths or IT if this hog roast didn’t exist.
Not as many as you might think.
First, you do need gilt traders (as well as corporate bond traders) because end investors need to buy and sell. Buyers and sellers very rarely match and the market-makers (GEMMS in the UK) intermediate this process (taking the risk that they may or may not be able move bonds on at a profit).
How many? There are about 17 GEMMS and each will have at most half a dozen gilt traders so, probably fewer than 100 people are gilt traders.
Of course, there is then a whole raft of people involved in settling trades, monitoring risk, liasing with investors, ensuring compliance with regulations etc. – and those numbers have exploded since my days working as a market maker.
Finally, there are investors… lots of them… and some of them are going to be speculators.
Thanks
All journalists covering economics should be made to read these entries.
Wow
I think I understood it.
What a fantastic explanation.
Liberating.
Thank you.
Bonds seem a helpful thing, gives a safe place for pension funds and helps governments regulate the economy, wondering why do MSM and politicians say beware of the bond market, etc?
Thanks
Worth it then
If one takes the view that bond market investors are in aggregate doing the government a favour by lending, then one needs to be beware of the bond market in terms of the terms on which investors will invest. There’s no default risk for investors in gilts, but there is inflation risk, which drives investors to invest longer term at higher rates than on, most notably, German government bonds. And higher debt interest => less scope for government spending on other things.
If one was in government and took the view that the government is doing investors a favour by letting them invest default risk free in £ then one probably wouldn’t worry about the bond market.
I do not take the view that “bond market investors are in aggregate doing the government a favour by lending”:
a) Because the market only exists because the government created it
b) The market cannot therefore be doing the government a favour
c) The government did and still is doing the market a favour by providing a safe place of deposit
Why do you choose to get everything wrong, when I have very clearly made my position clear? You are trying my patience. Engage with the issue, or don’t bother please.
Prof – Re your last reply to me, I know perfectly well what your position is. I gave both sides of the argument, which is probably an alien concept to you, but arguments are rarely as one-dimensional as you present them. I think the only totally one-dimensional argument is that in the long run, we’re all dead.
I thought you were a troll.
You prove you are.
And politely, like all trolls you utterly misrepresent the truth.
Richard…..I may have missed it but I could see no reference to ‘bond vigilantes’, why they have such leverage, can cause so much mayhem and what the government can do to protect itself from them?
Let me think about that.
Perhaps a couple of points :
Gilts are an overhang from the gold standard. Reserves and cash were convertible to gold, which is something the government could run out of. Due to that risk, it offered gilts in exchange for reserves / cash and those gilts were not convertible to gold but instead paid interest.
After the 2008 GFC the BoE began using the CBRA reserves for interbank settlement due to the failure of trust between the private banks and paying interest on the reserves but it has been estimated that only around ~ £39B in reserves is needed by the BoE for setting the daily base interest rate, the rest of these reserves could have a tiered or have no interest like the BoJ and ECB does… another nice little earner for The City maintained by Rachel from accounts. see https://www.taxresearch.org.uk/Blog/2025/04/11/why-wont-rachel-reeves-save-20-billion-a-year/
Correct
But they have a role in the economy – and it would be wrong to pretend they do not