The UK economy sits 'on a bed of nitroglycerine', investors warned - Mail

Thrugelmir

cogito wrote: »

The Greeks managed to sell a much oversubscribed bond issue this week without trouble. If they can do it, why should we worry?

Details please?

peterg1965

History repeats itself.....the Tories having to clean up after years of Labour misrule, overspending, near bankruptcy, we could be in 1979.

chucky

Thrugelmir wrote: »

Details please?

here you go

Greece was boosted by a show of market confidence on Monday after the government's first bond issue of the year was a success, despite fears over the country's mounting debt pile.

Demand for five-year bonds was three times more than the amount available for purchase, a welcome relief for the country which has seen its credit rating downgraded triggering fears it could default on its debt.

The success of the auction should provide Greece with sufficient funds to repay its short-term debt obligations.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7074291/Greece-bond-sale-boosts-market-confidence.html

Peelerfart

peterg1965 wrote: »

History repeats itself.....the Tories having to clean up after years of Labour misrule, overspending, near bankruptcy, we could be in 1979.

WOW !, should I get my Maggie Thatcher pictures back out ? or will DC just put a frock on ?

Anyone know of a mine we can close ?

ManAtHome

cogito wrote: »

The Greeks managed to sell a much oversubscribed bond issue this week without trouble. If they can do it, why should we worry?

Was that the 5 year one at 6.2% yield? Nothing to worry about then...

[edit] see we've had replies, but no mention of the yield strangely enough - link here http://www.xe.com/news/2010-01-25%2013:21:00.0/917489.htm?c=1&t=

Generali

ManAtHome wrote: »

Was that the 5 year one at 6.2% yield? Nothing to worry about then...

[edit] see we've had replies, but no mention of the yield strangely enough - link here http://www.xe.com/news/2010-01-25%2013:21:00.0/917489.htm?c=1&t=

Didn't Greek bonds trade at a premium of about 20bps (0.2%) above German Government Bundesbund? Now the premium is 318bps (3.18%) according to the WSJ (link) who you'd hope would know!

Oh and something to note for those who like to mock Mr Gross. PIMCO have over US$700,000,000,000 in assets under management. If they decide they're not buying your sovereign debt and say so publicly, a lot of other fund managers will follow. Right now that's not a problem as the UK is financing her own debt from UK investors for the most part. However, once QE ends the British Government is almost certainly going to be looking abroad for funds or face a huge problem of 'crowding out' (where Government borrowing prevents the private sector from borrowing to invest). It's people like PIMCO that would ordinarily be buyers of that debt. You might want to start being a bit nicer to Bill.

PS Here's a link to the newsletter concerned (link). It's normally pretty good. IIRC, PIMCO were one of the first large investment companies to say that what had been going on re lending in the States and elsewhere wasn't sustainable and may threaten bank solvency. Well worth reading the '16 tons' part of this month's letter.

Mr_Mumble

Those who bought the latest Greek issuance on Monday got burnt today:

Greek Government Five-Year Bonds Tumble in First Day of Trading

This is kinda crazy:

The yield on the Greek 10-year bond rose 44 basis points to 6.68 percent as of 4:35 p.m. in Athens, with the difference in yield, or spread, against German bunds increasing by 46 basis points to 350 basis points, the widest since December 1998.

Fundamentally there are two differences between Britain and Greece:

1. Britain's Debt to GDP is lower but given the huge deficit we'll be in Greece's position three years hence unless politicians get serious (they've yet to do so).

2. We print our own money, however, if financial markets lose confidence in Sterling the Bank of England may be forced to borrow in other currencies given the desperate need to raise £600bn over the next four years. Greece has been looking to issue debt in dollars and Yen as it struggles to garner funds.

Generali

Well it seems that PIMCO have changed their mind, at least in part.

http://europe.pimco.com/LeftNav/Global+Markets/European+Perspectives/2010/European+Perspectives+Mike+Amey+Discusses+PIMCO’s+Secular+Outlook+for+the+UK.htm

Sovereign risk is a key risk for the UK but in a slightly different way to the economies of continental Europe. The UK government deficit, which is currently running at around 11% of GDP, is one of the highest both on record and within the developed world. That creates a potential risk as regards to the ability of the government to finance its debt. However, unlike countries within the eurozone, the UK has the advantage of an independent floating currency, making it highly unlikely it will suffer the problems currently besetting parts of the eurozone. With its own currency, the UK will always have the ability to repay its debts, but it may devalue the debt in real terms when viewed in non- GBP terms. Therefore, UK sovereign debt risk will continue to be an issue as long as UK debt levels remain high, which in turn will put pressure on the currency and the inflation rate, and potentially erode the longer-term value of government debt.

Separately, the eurozone accounts for just over 60% of UK trade. If the eurozone’s debt problems result in a protracted period of economic weakness, it will be harder to sustain positive UK growth. That is one of the reasons why we expect UK growth to remain materially weaker than it has been over the last decade.

There's a bit in here for Hamish:

We expect the Monetary Policy Committee (MPC) and the BoE to act cautiously when raising rates. The economy is still highly leveraged and the Bank will want to see the recovery firmly entrenched before hiking rates. This is all the more likely as we expect the government to embark on a multi-year programme of fiscal austerity. As such, we expect tight fiscal and loose monetary policy over the secular horizon.

And a bit for me and many others that see a rough time for the UK economy over the next few years but not Armageddon:

As we move forward, we think we will go through bouts of volatility, particularly in the industrialised world where a lot of balance sheet flexibility has already been sacrificed. This outlook is particularly applicable to the UK, which will be weighed down by the combined balance sheet stress across the personal, banking and public sectors.

We expect UK growth to be positive but constrained over the next three-to-five years. Real economic growth rates are likely to come in consistently below the 2.5% to 3% levels we saw for the decade running into 2008