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RSSRejoice! We're a safe haven.
But low gilt yields aren't a vote of confidence in the UK economy.
By Mehdi Hasan Published 11 November 2011 14:29
The Chancellor George Osborne will have been delighted to pick up the Financial Times this morning. As the Eurozone implodes, the FT's splash was headlined:
Gilt yields fall as UK becomes safe haven
"Safe haven" is a line that the Chancellor and his supporters in the right-wing press have been spinning for several months now, arguing that the fall in UK government borrowing costs - gilt yields - to historic lows is a vindication of the coalition's austerity agenda.
It isn't.
The inconvenient truth is that low gilt yields are a reflection of economic weakness, not strength. Investors are pricing for a double-dip recession - or as the Telegraph's in-house deficit hawk Jeremy Warner conceded back in August:
Gilt yields are signalling a depression
As the FT story itself goes on to reveal:
[L]ow returns reflect expectations that the Bank of England will keep interest rates exceptionally low for the foreseeable future given the UK's extremely weak economic prospects.
The paper also cites an important, if under-reported, study by former Cabinet Office chief economist Jonathan Portes:
Examining the links between stock market performance and gilt yields, Jonathan Portes, director of the National Institute of Economic and Social Research, has found a strong correlation between lower gilt yields and greater investor concerns about economic prospects.
Over to you, Gideon...
Mehdi Hasan is the New Statesman’s senior editor (politics) and the co-author of Ed: The Milibands and the Making of a Labour Leader
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38 comments
Not much point in being a safe haven when all the boats are stuck in port, doing no trade.
Some proper economic illiterates in here.
I'm sorry but to deny that he UK's low gilt rates is economically illiterate and frankly and sad and pathetic lie.
Go read Economics for Dummies you Morons
Fracking is no threat to the water table. They have polluted some water years ago but the technology now is well beyond that. You need a different cause MR D. Fracking will have the US energy independent by 2020. They say it will produce energy for us for the next 500 years.
'Examining the links between stock market performance and gilt yields, Jonathan Portes, director of the National Institute of Economic and Social Research, has found a strong correlation between lower gilt yields and greater investor concerns about economic prospects.'
oooooooh, a correlation- that's a statistical term i thought- u shoudn't be using those mehdi. Neither should portes, he's another clueless one who had to go.
But do tell us why ure so keen to put UK down... awaiting you're opinion on why rates are low in UK desperately- maybe ure insight might help the euro zone busted countries , they need ure input Mehdi!!
OR
maybe it's just another dollop of your shameless political nonsense- saying anything, hoping u get that job when balls and blanchflower take over. Is it that? Otherwise explain the jigh yields, the price action that contradicts everything u say...
Another political wannabe putting forward views that only would lead to a great mess- ring any bells anyone?
"The inconvenient truth is that low gilt yields are a reflection of economic weakness, not strength."
Why not break it down into its components - inflation, the real interest rate, and the part you are looking for - the sovereign risk component.
Fortunately CDS allows us to do just that: isolate the sovereign risk component. And how do CDS spreads say the UK stack up? As a safe haven.
Sorry Mehdi.
Divine, take your darn meds and give us a rest.
So by that logic the markets are signalling an expected period of significant economic expansion for Greece and Italy
Can one who is AWAKE and ignorant call themself awake. Perhaps the name is an irony.
Hate takes up so much energy. It keeps you AWAKE but IGNORANT.
@Mr Divine : Buckskins is right - fracking is nothing new to the natural gas industry and has been around for a very long time. A relation of mine worked in the industry for over thirty years. Fracking has attracted its critics, notably environmentalists, but shale gas is located thousands of feet deep underground - your average drinking well is just a few hundred feet deep. Separating the two is solid rock. To date there have been no proven cases that fracking affects drinking water at all. Shale gas is a real competitive threat to renewable energy because it is much more cheaper than renewables - which is probably why the green movement is against it - but then much of modern environmentalism today amounts to little more than self-flagellation.
Buckskins: Are you for real? Think about pouring thousands of gallons of poisonous chemicals underground. Are you really telling me that that is safe? How are they going to get it out? Do you think that there is one pipe there and it goes to the sewerage works! The water table spreads all over the place... underground!
Have a look at this article. The US Government of Energy led by an ex-CIA member is saying it's really dangerous to the environment.
http://www.vancouversun.com/technology/Fracking+activity+risks+recognize...
Take a look at this article .. a whole community has poisonous water!
http://www.vanityfair.com/business/features/2010/06/fracking-in-pennsylv...
Buckskins THIS IS THE LINK for YOU.
You come from Southern Texas and have cattle and crops. Have a look at this map. Still feel safe?
http://earthjustice.org/features/campaigns/fracking-across-the-united-st...
The United States is going to be unlivable if fracking continues including your ranch. You'll be moving down to Mexico and picking strawberries for 50 cents an ton mate.
You Americans go round shooting your guns all over the world and you end up poisoning yourself for a fast buck!
The Islamic world has got something to teach you mate .. it's not the other way around.
Some people realise that clean water is essential for life and that we have been put upon this earth by our creator to live in harmony with nature, to respect nature. We are a higher species of being than animals.
Making money is not the sole purpose for our life here on earth.
Lets hope that British people don't succumb to a fast buck and permit fracking. I really love my home country and now these companies that have no roots anywhere want to come in and poison my land. Why is that happening? For bloody money, for bloody greedy grubby dirty hands like yours.
http://www.youtube.com/watch?v=VkDMy-6x69g&feature=related
why won't Mehdi answer the questions? he does sometimes. Not on this one though, the facts are too easily checkable. NS pays him???
er, mehdi, if bond market investors, equity investors, sovereign wealth finds and pension funds say the UK is a relative safe haven , then it is, since they're the ones who buy our gilts. Not u, nor anyone following your 'economic insight' lolLOLOLOL
and by the way, whilst u take he mickey out of the fact that we are enjoying low yields in unconventional times, I do wonder what mortgage payers, small business owners and the rest are going to wonder when they read you're schoolboy nonsense...
Mehdi
Answer the question- why are French yields rising and ours so low? come on, it's not hard- they are similiar to us in population , output, culture, weather etc. Why don't you answer mehdi?? we need your light! draghi needs your light!! Merkel sarkozy, we're all on tenterhooks- why do u put UK down so much?
Can someone remind me what happened to traitors in the old days? Or in Muslim countries?
I think the economic message is clear - Low Gilt yields are either good or bad, depending on who's talking about them and why.
Tesco Shelf Slacker: 'To date there have been no proven cases that fracking affects drinking water at all.'
So you believe what your friends tell you? Do you believe everything that anyone says to you when you're putting the cupcakes on the shelf?
What you need to do is stop listening to what other people say and see it with your own eyes.
http://www.nerditorial.com/newsandopinion/fracking-fears-in-the-uk.html
Is that convincing enough?
@Buckskins: You can suck oil up from the earth but with gas in seams you need to pump gallons of poisonous chemicals into the earth.
You can only use creation before it bites you back.
@Mehdi Hasan: There are many good parts of the Islamic faith but some aspects are not God's will. Heaven is not a place where you go when you die and abuse virgin women. It isn't a place for men to abuse women. Earth is not a place for men to dictate to women. It is place where there is respect and compromise between a man and his ONE wife. This place is through negotiation and compromise. Thinking in a one dimensional Muslim way leads men to be gluttonous: to desire more things than they need. To be animals with their eyes bigger than their bellies. To be pigs with their noses in a trough. The only way from the top of the mountain is to fall down like a stone. The way to heaven is the Christian Way.
Many rich Muslim men try to recreate heaven on earth by money: that is they use their money to buy women, children, drink, and drugs.
Heaven is a place on earth where men and women treat each other with respect and negotiate their lives through compromise not dictatorship. It is a place where men yield to the wishes of their wives. it is a place where human beings do not try to enslave others for their own personal base satisfaction. It is a place for a higher species of being, namely man.
They will bark at airoplanes that rocket to the sky and get on their knees and cry. Follow me they will chant but one by one they burn in hell unless they recant. Christianity is the path of the Lord not falsification, greed and gluttony. Get on one knee Mehdi Insane for this is your day to pray, to really pray the proper way.
http://www.nerditorial.com/newsandopinion/fracking-fears-in-the-uk.html
Des Demona - exactly and I'm sure Mehdi knows this, perhaps he's just trying to influence our bovine brains.
How you feeling Mehdi?
Seeing as I was reborn with a heart of Gold I can assure you that you can change the situation. It's a matter of you convincing our fellow Muslims that the their concept of heaven is wrong. That's where the female oppression comes from .. they are trying to recreate heaven on earth.
How was that for a trip eh? That was my third so it was easy for me! I told you there were red indians!
I've been a Muslim three times so I know what it feels like. And there are quite a few virgins entering into your 'dreams'. Sometimes they are just lining up pushing each other off... a psychotic episode certainly has its compensations! The other thing is that you do see different stars and 'entities' in the sky at different stages of consciousness. We are not alone .. that's for sure.
The key to world peace is to have a realisation that God wants us to love one another on earth. He wants us to negotiate with our partners, to see them as equals.In fact I find its easier to let my wife take a lot of decisions. The virgins are there because I've been there: somehow you connect with them with your mind and fill them with your sperm. But you've got to go past the mountain to be reborn. Your mind comes out clear.
Gilt yields do not reflect growth prospects (levels of GDP make not the slightest difference to the return on a bond) they reflect inflation expectations.
Low gilt yields thus currently reflect the fact that the current 5% level of inflation will fall sharply and will stay low for the foreseeable future.
Low inflation is certainly connected to low growth prospects but it is a secondary rather than primary effect. If the markets expected UK inflation to hit 15% say then bond yields would not be under 2.5%.
And secondly UK bonds are being irrationally priced through the effects of QE.
"Safe havens" are also all relative.
It is quite possible for the UK to be a bit of a basket case but still a damn sight safer store of wealth than Italy or France.
"Buckskins THIS IS THE LINK for YOU.
You come from Southern Texas and have cattle and crops. Have a look at this map. Still feel safe? "
I told you. You need to get up to date with your cause.
I also have 2 oil wells on my place here and they have been pumping for 35 years. My water is tested twice a year and I have sweet water at a constant 60F or so. They can and hopefully will, frack the crap outta my place.
PS. They have been fracking in the UK for several years.
Mehdi
yesterday the french press discussed fears about comments from rating agency Moody's , warning that France's AAA rating could be at risk from higher borrowing costs and weaker growth prospects.
Mehdi u need to call the French financialm authorities quickly and explain to them that they have it all wrong and that their yields should be falling.
Not fair is it mehdi, everyday I can take something that's happening in the world and copy paste here which shows how little understanding u and ure mates have of economics.
OR, were u writing for different reason. Seriously, if u wanted to write politically motivated stuff it's laughable..
A safe haven for people?
How can anything be safe when there are fracking companies pouring chemicals into the earth and poisoning the water table. Once those chemicals are underground you can't get them out. They get into the soil and then into the plants and crops. Animals eat the plants and we eat the animals and the crops. You can have all the money in the world but it wont make any difference if you are drinking and eating poison.
Is Britain really a Safe Haven?
The key to world peace is to have a realisation that God wants us to love one another on earth. He wants us to negotiate with our partners, to see them as equals.In fact I find its easier to let my wife take a lot of decisions. The virgins are there because I've been there: somehow you connect with them with your mind and fill them with your sperm. http://www.besthomeimprovementideas.org/
Mehdi
weirdly mehdi, today, as those nasty italian 10 yrs are knocking on 7& again, spain yields are up and FRANCE are WELL up as awell...
yet UK, sweden,swiss and germany yields are lower... and it's like this for the last few months each time there is a data point the price action is very similar.
So to be clear mehdi, the UK is being lumped in with swiss, german, and swedish dosgy bonds. I guess despite these facts u will still take the piss out of the people who are delivering low yields as neighbours economies blow up. Do u geettiit maehdi, the clowns running europe have done the damage -it's over, and the coming wave is gonna flatten any relationships as we knew them. UK rates at all time lows with this context is a result that u can't even begin to fathom because the people u listen to for economic guidance have never ever fixed anything in their lives.
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