In the wake of Wednesday’s inflation report from the Bank of England we pondered whether investors’ patience with the UK budget deficit might be closer to breaking-point than at any time in the past year.
The context being that UK gilt yields had risen significantly relative to yields in other government bond markets since investors began to anticipate the pause in QE
And on Thursday, we note, the yield on the 10-year gilt moved back above 4 per cent.
So what is happening here? Are the markets trying to goad BofE governor Mervyn King into another round of QE?
Or perhaps those speculative forces that have attacked Greece, Spain and Portugal are turning their attention to Blighty.
Or perhaps the Greek bailout news has reminded investors that Britain would be less likely to find support if came under speculative attack, as it is outside the euro zone.
Whatever the answer, it’s certainly disconcerting and something worth following.
Related links:
Next to the trough – FT Alphaville
Nowotny talks contagion, exit strategies and all things peripheral – FT Alphaville interview
An eye-catching quote – FT Alphaville