The Lemon Fool

Yields are starting to rise, some quite sharply

https://uk.investing.com/rates-bonds/

Even so they are still way below whatever measure of inflation we are given

CPI didn't fall as much as was expected and RPI is still in double figures

Well if Government Bond yields are any indication of the markets perception of a particular economy, then the we, the UK, are leading the way.

Ahead of Spain, Portugal, Italy, Greece....and well ahead of Germany, France and the Netherlands.

The shorters and 'bond vigilantes' are having their day in the sun.

Nice for those with a mortgage too - not.

https://www.bloomberg.com/markets/rates-bonds

UK Two Year Bond Yield just now 4.883%

Peak when Truss was sacked 4.597%

Rishi not sacked yet...................it's a funny old world.

scotview wrote:
Rishi not sacked yet...................it's a funny old world.

For failing to engineer a recession presumably...

scotview wrote:UK Two Year Bond Yield just now 4.883%

Peak when Truss was sacked 4.597%

Rishi not sacked yet...................it's a funny old world.

Shows you don't understand gilt yields. If you think a comparable situation between that when base rate was 2.25% and 4.5% exists I would suggest you are mistaken.

What was the 2 year forward gilt yield on the day she left?

dealtn wrote:
What was the 2 year forward gilt yield on the day she left?

Are you saying that the gilt yield spike and consequent Market/BoE/Press/Tory Party/Pension Industry panic wasn't one of the reasons, maybe the main reason, for Truss being ousted.

That isn't the impression I got in Sept '22. Funny how perceptions change.

scotview wrote:

dealtn wrote:
What was the 2 year forward gilt yield on the day she left?

Are you saying that the gilt yield spike and consequent Market/BoE/Press/Tory Party/Pension Industry panic wasn't one of the reasons, maybe the main reason, for Truss being ousted.

That isn't the impression I got in Sept '22. Funny how perceptions change.

You didn't answer the question.

GS

GoSeigen wrote:
You didn't answer the question.

GS

No, I don't fully understand gilts (if at all, who does ?) but I can recognise two spikes on a graph and when one spike is bigger than the other.

Don't understand Bonds either or how the Base Rate is arrived at.

scotview wrote:

dealtn wrote:
What was the 2 year forward gilt yield on the day she left?

Are you saying that the gilt yield spike and consequent Market/BoE/Press/Tory Party/Pension Industry panic wasn't one of the reasons, maybe the main reason, for Truss being ousted.

That isn't the impression I got in Sept '22. Funny how perceptions change.

I am absolutely not saying that. The spike in Gilt yields was dramatic. However base rate was 2.25% so 4.59% for 2 years was a significant premium over short term cash, projecting (very) large increases over that coming 2 years.

Now the 2 year rate is "only" 4.88%, which is higher, but base rate is now 4.5% so the premium and expected additional rises are small. The situation is completely different so to compare the 2 as you do is either disingenuous, or through ignorance. A better, though still imperfect, comparison is to look at the forward implied 2 year Gilt Yield covering June 23 -June 25 using the October 22 spot gilt curve so you are comparing the market implied equivalent period. Your "Rishi is worse than Truss" analysis falls over.

scotview wrote:

GoSeigen wrote:
You didn't answer the question.

GS

No, I don't fully understand gilts (if at all, who does ?) but I can recognise two spikes on a graph and when one spike is bigger than the other.

Don't understand Bonds either.

Surely the magnitude of the gilt yield jump under Truss was large because Bailey had been holding back on raising interest rates? His incompetence is now plain to see. Because of his incompetence, the subsequent inexorable rise in yields was always going to happen.

scotview wrote:

GoSeigen wrote:
You didn't answer the question.

GS

No, I don't fully understand gilts (if at all, who does ?) but I can recognise two spikes on a graph and when one spike is bigger than the other.

Don't understand Bonds either or how the Base Rate is arrived at.

Fair enough. dealtn is an expert and so are others around here, hopefully his latest post explains why the spikes are not entirely what they seem; I expect he'll be happy to answer other good-faith questions on the topic.

GS

dealtn wrote:

scotview wrote:
Are you saying that the gilt yield spike and consequent Market/BoE/Press/Tory Party/Pension Industry panic wasn't one of the reasons, maybe the main reason, for Truss being ousted.

That isn't the impression I got in Sept '22. Funny how perceptions change.

I am absolutely not saying that. The spike in Gilt yields was dramatic. However base rate was 2.25% so 4.59% for 2 years was a significant premium over short term cash, projecting (very) large increases over that coming 2 years.

Now the 2 year rate is "only" 4.88%, which is higher, but base rate is now 4.5% so the premium and expected additional rises are small. The situation is completely different so to compare the 2 as you do is either disingenuous, or through ignorance.

He's already said which it is, I don't think it helps to rub it in (though dealtn may have missed the latest post).

A better, though still imperfect, comparison is to look at the forward implied 2 year Gilt Yield covering June 23 -June 25 using the October 22 spot gilt curve so you are comparing the market implied equivalent period. Your "Rishi is worse than Truss" analysis falls over.

It would be instructive and helpful to post images of the implied 2 year Gilt Yield from the two relevant periods.

GS

GoSeigen wrote:It would be instructive and helpful to post images of the implied 2 year Gilt Yield from the two relevant periods.

GS

Sorry for my ignorance and thanks for taking the time to suggest those instructive ideas.

Just a final thought and don't wish to be a real pain but, notwithstanding the subtleties of the above arguments, why did the likes of the data guy on Sky News just show the basic 2/10 curves when he was explaining, for example, the LDI panic to the viewing UK public last year, was Sky/BBC being disingenuous ?

Thanks.

scotview wrote:

GoSeigen wrote:It would be instructive and helpful to post images of the implied 2 year Gilt Yield from the two relevant periods.

GS

Sorry for my ignorance and thanks for taking the time to suggest those instructive ideas.

Just a final thought and don't wish to be a real pain but, notwithstanding the subtleties of the above arguments, why did the likes of the data guy on Sky News just show the basic 2/10 curves when he was explaining, for example, the LDI panic to the viewing UK public last year, was Sky/BBC being disingenuous ?

Thanks.

Forward yield graphs aren't easy to find (or produce) and TV news is mostly dumb. I am sure we all have examples of areas where we have experience and knowledge and are staggered by the overly simplistic and plain wrong "news" and "analysis" we see in those situations. It doesn't take a stretch to realise the same is happening in those areas where we don't have that experience too.

Imagine a scenario (in my other world) where the manager of Leeds was sacked as they only had 25 or so points. Can you imagine a scenario 6 months later when the manager of Man Utd only had 10 points and people were calling for his sacking as a result? The fact one was after 30 odd games and the other after 7 would obviously shows the fallacy in such an argument. Yet the same happens all the time in financial analysis.

dealtn wrote:
Forward yield graphs aren't easy to find (or produce) and TV news is mostly dumb.

Thanks for that honest, interesting answer dealtn.

The BoE has not increased the base rate as quickly as it should have done. Nonetheless, the root cause of the problem is that taxes have been too low in relation to government expenditure. The BoE has not had much help from the government. Taxes are being raised by freezing the allowances, but that does not take money out of the economy immediately. Base rate rises do not have much immediate effect either, because so many loans are fixed rate. Money has to be taken out of the economy. The government could do that more fairly than the BoE, but does not want to do it.

GeoffF100 wrote:The BoE has not increased the base rate as quickly as it should have done. Nonetheless, the root cause of the problem is that taxes have been too low in relation to government expenditure.

Or spending has been too high?
Raising pensions and benefits by the rate of inflation, and raising the minimum wage so much, sent a message to unions that even the Govt did not believe in the need for below-inflation pay rises in order to bring down core inflation.

Nimrod103 wrote:

GeoffF100 wrote:The BoE has not increased the base rate as quickly as it should have done. Nonetheless, the root cause of the problem is that taxes have been too low in relation to government expenditure.

Or spending has been too high?

That is what it says. This is not the board to say who should have money taken from their pockets to bring the money supply in line with the supply of goods and services.

scotview wrote:

dealtn wrote:
What was the 2 year forward gilt yield on the day she left?

Are you saying that the gilt yield spike and consequent Market/BoE/Press/Tory Party/Pension Industry panic wasn't one of the reasons, maybe the main reason, for Truss being ousted.

That isn't the impression I got in Sept '22. Funny how perceptions change.

Well Lord King now says that the circumstances leading to Truss's defenestration were just the markets getting hysterical:

Yeah I do think we got a bit hysterical… I don’t think the economic consequences were that bad and frankly they’ve gone away. They’ve disappeared now… and no-one got hurt”

https://order-order.com/2023/06/14/form ... /#comments

It is a shame that "we" were being led and instructed by by someone so incompetent as Bailey. If only King were still in charge of the MPC/BoE.