UK government spending
Here’s a bit more on why the UK government’s massive spending review has had, and will likely have, less than a massive influence on the market for its bonds. In fact — the government is detailing its cuts amid gilt yields that have rarely been lower in post-war history.
The Christmas reporting season for the retail sector is just getting into full swing, but already some trends are emerging. Both Next Marks and Spencer have reported sales figures which impressed (in fact, M&S has reported the first quarterly underlying sales growth in the UK for the first time in more than two years) but both have seen their shares prices retreat.
What a difference a day makes – at least to the holders of US and UK government bonds, and analysts. Since S&P said it would lower its outlook on the UK to negative from stable – which sparked suggestions the US might face a similar fate – Treasurys have faced tremendous selling pressure.
We have wondered from the time to time what sovereign CDS on rich nations are actually for. After all, such extreme economic collapse leading to a real event of default would probably mean that the writer of protection would be unable to fulfil their obligations. No matter. As the chart here from Merrill Lynch shows, credit protection on major European governments is not exactly going out of fashion. (Click for a sharper image)