What’s bothering bonds?
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What are the current trends impacting UK bond yields?
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Cushkin. Stock markets are so hot right now. People keep telling me with a straight face that the biggest risk in stocks today is that we're not taking enough risk in stocks. Let's see how that one ages, shall we? Anyway, meanwhile, bonds not happy like they're really not happy. Bond prices are down, which means borrowing costs are cranking higher all over the world. Meanwhile, the UK has done what it does best and manufactured a political crisis out of thin air. So UK government bonds, or gilts, are really feeling the heat. Today on the show, what's bothering bonds, why do normies care, and how can the UK avoid making a bad situation worse? This is Unhedged, the markets and finance podcast from the Financial Times.
I'm Pushkin. I'm Katie Martin, a markets columnist down in the dungeon at FT Towers in London, which is inexplicably freezing cold.
I'm joined, as usual, by the big man in New York City, Mr. Rob Armstrong. Rob, do you have your special chair again?
Yes, they've got me locked in place again.
Good.
This is what it's come to.
I'm joined right here in the London studio by our newbie on the Unhedged newsletter, Darren McFadden. You've been at the FT for like a month. You came from the Bank of England. You came from a proper job. How are you liking our funny ways? Is it a very different place to be?
I mean, it's basically anarchic. I think my imagination of how a newsroom function would have been An editor stood atop a command structure asking for this by 5 o'clock, this for tomorrow. And instead, it all just comes together with everyone just doing their work.
This is what I tell this to every time someone joins the FT. They say, you know, what do I need to know? And I tell them, there are no rules and no one is in charge. And they think I'm joking. And then they work here for a couple of months and they come back and they're like, oh, you weren't kidding.
Here we go. Yeah. Yeah, let's just hope the editor doesn't hear this.
Yeah, good heavens.
It's quite a grand building, the Bank of England, isn't it? It's like part of old London. It's one of the bits of old London that didn't get bombed back in the day. It must have been kind of quite a special place to work.
Yeah, weirdly. I mean, from the outside, it looks like a beautiful building, but there are all sorts of downsides to working in a, you know, 100-year-old building now that's single glazed windows. It's very drafty. You have to walk 10 minutes to get to any meeting room.
Yeah.
So it is a relief to work in a more modern office building.
We're dead glam here. So look, we're the FT. We're a London institution. So let's start with the UK. The UK has got itself into a bit of a pickle here, right? So the UK government bonds market, which everyone calls the gilts market over here, we borrow a lot relative to the size of our economy, but we're really tiny in the global scheme of things. We're much smaller than treasuries. And so... That does mean that we sometimes muck it up and gilts get really volatile. In a nutshell, Dara, what is going on at the moment?
Well, to start with, yeah, like you said, Katie, the size of the UK gilt market is a lot smaller than the Treasury market. So there's a lot more of a risk that investors in gilts would lose interest in being invested in gilts. At the moment, the UK is in this very tricky situation of being at the center of both global dynamics that are pushing up yields internationally and a sort of political crisis taking place in the UK now, which is adding to the yield on the longer dated gilts. Can I provide some context here as the crass American?
I am looking at a screen here that has all the European countries.
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