Pimco has laid into the UK again – this time having a go, specifically, at the Labour government.
In an interview with Dow Jones Newswires, Scott Mather, head of global portfolio management, said there was an 80 per cent chance of a credit rating downgrade for the UK if the chancellor’s debt reduction plans remain as they are.
Mather added that gilts yield could rise by as much as 100 basis points when the Bank of England’s QE programme ends.
Asked if the U.K. faced a serious risk of suffering a downgrade to its credit rating, Mather said “I think so.”
“It’s just a question of when on the current trajectory, not if,” Mather said.
“Based on what we know today about the debt trajectory and about the inability to adjust that, I think it’s greater than a 50% likelihood for sure. Call it more like 80%.”
“Common sense would tell you that if you had a buyer in the market place which was taking the majority of the sector repeatedly… and then they disappeared, …you would expect a reprising, and it could be quite significant,” he said in a telephone interview.
“The estimates vary. They’re really all over the map, but it could be 50 basis points, it could be 100 basis points, in that range.”
The Daily Telegraph took the opportunity on Tuesday to extend this to a personal swipe…
The move is doubly embarrassing for the Government because the head of Pimco’s European investment team is Andrew Balls, brother of Schools Secretary Ed Balls, who is mastering the Government’s re-election strategy. The move will be seen as a financial vote of no-confidence in the Government’s handling of the economy.
Meanwhile, in the bond markets on Tuesday, the yield on the 10-year gilt ticked slightly higher to 4.016%, as prices weakened across the board.
And finally to put things in a bit of context, the Debt Management Office expects to issue £187bn of gilts in the fiscal year 2010/11 and £164bn the year after.
Try doing that after a credit downgrade.
Related links:
Consolidating the US, UK gov’t bond sell-off – FT Alphaville
Funds cut back on US and UK bond holdings – FT
PIMCO’s Gross: U.S. at risk of losing top AAA rating – Reuters