Welcome back. As you can see, Ed Conway
has joined me here because the yield on
the government's 30year bond, one of the
best measures out there for long-term
borrowing costs nearly hit a 27year high
yesterday. So, Ed's here to tell us more
about this, but this actually has been
long since planned. Yesterday's a
convenient peg.
>> Yeah, this it's worth doing an update
every so often, an update on kind of
where we are with with borrowing costs.
It just
>> You can always come and talk about bond
yields with me.
>> Thank you. You know, I know I know I
know how much you enjoy you enjoy talk
about bond yields. We got lots of bond
yields coming for you. Uh well, the I
think the thing is yesterday, I mean, if
there's one thing that's slightly
scarier than markets kind of lurching
around, it's it's when you're not
entirely sure why it is. And actually,
it wasn't like there was lots of news
yesterday. However, what happened was
the 30-year bond deal and and you know,
I guess we're all a bit more familiar
with these things. This is the
government's rate of interest. how much
it's you know it's kind of the most
equivalent thing to it is kind of
mortgage rate um and that you know went
up obviously during the mini budget and
so that was the kind of moment that
everyone got quite nervous about what
was going on with the UK's borrowing
cost and what that meant in turn for the
rest of the financial markets so we saw
all sorts of chaos around then but the
striking thing is since then this line
has crept up and up and up and actually
if you look at it now and kind of draw a
line back I mean you have to go back in
terms of the close, the end of day
close. It's the highest since 1998. It
was slightly higher in April for a
moment, but nonetheless, we are talking
about getting off kind of unprecedented
certainly in the last few decades highs
in the government's rate of borrowing.
And of course, when that gets higher,
interest rates go the interest kind of
burden for the government goes up. So,
it's having to spend more on that.
Indeed, we're having to spend more uh on
that. Um and indeed, it kind of has
other implications. And so, a lot of
people kind of are wondering why is this
happening? The Bank of England's cutting
interest rates, so their interest rate
is going down. The one that we're
familiar with, that's going down. Why is
that one going up? Is it just the UK?
Are other countries around the world
facing this as well? And the kind of
short answer to that is kind of yes and
no. If you look what what I've got here
is that that red line is still the UK.
This kind of area is where the rest of
the G7 except for Japan are. And I think
the striking thing Wolf to look at here
is in a period kind of around the
pandemic and actually kind of quite a
few years before that. Look at where the
red line is in relation to this area. So
that's the highest, the lowest within
the the rest of the G7 versus minus
Japan. The UK was kind of the middle of
the pack and then suddenly around the
mini budget, it kind of goes up above
the rest of the pack. And that's the
kind of moment everyone was concerned
about. But since then, look at that red
line. It's been higher than the rest.
And now I think the worry that people
have at the moment is look, we're a real
outlier here. So, our interest rates are
going up higher than most other
countries around the the world, even
though their lines are going up as well.
>> I I might be preempting a chart that
you've got to come, but I think just to
add the one extra point to add on this,
ours is doing that here on the 30-year
chart,
>> which is perhaps the most important for
government borrowing at a time when the
Bank of England is moving in the
opposite direction on the shorter end.
So the sort of one part of the yield
curve you can control
>> is coming down and yet the longer part
the more important part is rising during
that period of time.
>> You know you're throwing out my order
because I had I did have a chart on this
towards towards the end. I've got I'm go
to it. We're going to roll with it. Um
because you're right interest rates uh
are coming down and and actually if you
look at kind of the 10-year bond which
is kind of also kind of maybe reflecting
that shorter end a little bit more that
that's coming down as well. Um, worth
saying though, I think one thing that,
you know, this might be a little part of
the explanation. It's still a bit of a
mystery. No, like everyone I spoke to
yesterday was like, we're not quite sure
why this is happening, but maybe part of
it is the fact that back in July, it
looked like interest rates in the
future, that's the forecast. So, the
next or rather what the market thinks is
going to happen. They thought it was
going to coming down kind of that
quickly. If you look more recently, so
just the last a few days ago, that line
is getting higher. So, so people still
expect interest rates to go down.
They're just not going down as quickly
in the UK as was previously thought. I
think the other thing which is a big
part of this, okay, well, I'm going to
get now I'm going backwards. So, we're
all over the shop here. Um, I think the
other thing which is like hangs over
everything right now and you saw that
all of those lines were kind of going up
a bit, but the UK was slightly more than
the rest. This is just a measure of
uncertainty, policy uncertainty. The
higher these lines are, the more based
on what you're seeing in newspapers,
people are talking about these things as
being of concern. That obviously is the
US election. Just look at what happens
to these lines after that. So, you've
got policy uncertainty, particularly
trade. So that red line is trade policy
uncertainty. People not knowing what's
going to happen with trade polic. We
know we're in that world right now with
a trade war. These lines, many of them
are basically at the highest level that
we've seen, you know, in in many many
many years. So that feeds into it. You
know, people are less keen to to to buy
government debt when they are nervous.
So they go and buy other things. They
buy gold, they buy other assets. And I
think there's there's another kind of
deeper concern which is, you know, are
governments particularly kind of western
governments just borrowing so much? So,
so we know we have a UK story here and
the government has, you know, done all
these U-turns. It has to try and find
some money to sort out it public its
finances. But across the kind of
developed world, this is just showing
you how rates of public and private debt
have changed in recent years. Okay, so
this is uh public debt uh sorry that
that one's public debt, that one's
private debt. And the key thing to note
here, Wolf, is look, they were more or
less in line with each other since 2000.
But look at what happened since then.
Okay, so private debt has gone up.
That's this is debt, you know, in the
private sector. So mortgages, everything
else that's gone up. But look at what's
happened to government debt, the red
line. Okay, just look at how much higher
that's gone up. So you've got this
period where governments around the
world, that's the pandemic there, but
nonetheless, it's been this constant
going higher and higher and higher.
Governments around the world are just
raising their debt levels far faster
than private business. And it's the UK,
obviously. We've seen our, you know, our
year kind of um national debt go up a
lot. In fact, you know, every year they
say it's going to go down and going down
and down and in reality it actually kind
of keeps going uh even higher. But it's
not just the UK, it's, you know, other
countries uh as well. If you look at,
for instance, um that's where our
national debt is going in the future. Um
Germanyy's obviously much lower. Germany
just got this history of not really
borrowing too much. But look at France.
France's deficit is going up even
higher. Uh this is the national debt. uh
look at the US as well. So I think you
know there's this kind of broader thing
which is are people are investors around
the world just really concerned about
governments borrowing loads of money not
really having a plan to pay it back. And
then on top of that the problem for the
UK is kind of since 2022 since the mini
budget we've been the ugly duckling. So
anytime people are nervous about what's
going on they pick on the UK. That's
like I say that's one theory. None of
this helps Rachel Reeves. It still means
she's got a big hole to fill and there's
much more pressure on her than before
>> and and the hole I guess is if we have
more moves like yesterday getting bigger
much bigger influence on what she's got
to spend are those long-term borrowing
costs as opposed to what the Bank of
England is doing with the short-term
borrowing costs.
>> Yeah, the the hole gets bigger because
you you have to spend more on interest
costs and so far we still don't have a
plan from the government and I think
that's going to be the interesting thing
to watch in the in the coming months.
you know, as people come back from from
their holidays, you know, what does this
mean for the government's plans? What
does it, you know, there's all this
speculation. Are they going to do
something with council tax? Are they
going to do something property taxes? We
don't really know yet.