The Bond Bubble is growing even larger over Britain, pushing 10-year yields down to 2.1
per cent. The FT splashes on it this morning, and uses the “safe haven” line, which is also being advocated by the Conservatives. Understandably. If I were George Osborne, I’d
spin this as a standing ovation from the markets for my deficit reduction plan.
In fact, it’s just a grim reflection of the fact that Britain’s low-growth, high-debt economy is less unattractive than Italy’s. But it does have another side effect, that people won’t quite admit to.
Osborne’s cost of borrowing is going down (partly due to expectations of more QE) and since the Budget, ten-year yields are off about 130bp. More importantly, there are even bigger declines in the forecast yields projected by the Debt Management Office. That won’t save very much this year, but Citi’s
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