Britain knows all about crises in bond markets and how quickly events can get out of control.
Liz Truss and Kwasi Kwarteng’s efforts to restore the Tory low-tax narrative collapsed, forcing them to leave Downing Street as the price of gold-rimmed shares plummeted, yields soared, the cost of mortgages soared and pensions were on the verge of imploding.
Successors Rishi Sunak and Jeremy Hunt have spent much of the last year trying to restore market confidence in the stability of the UK’s public finances.
The Gaza conflagration and concerns that it could spread to the northern borders of Israel and Iran are causing fresh alarm in the US Treasury market, which provides lubrication to much of the global economy.
President Biden’s big-spending strategies may have found support among progressives, including the Labor Party, but they continue to make bond markets nervous.
Confident: US Treasury Secretary Janet Yellen (pictured) says there is ‘no dysfunction’ in Treasury market despite rising yields
Reports that, fresh from Israel, Biden will ask Congress for another $100bn (£83bn) to help fund military campaigns there and in Ukraine are unlikely to be received with equanimity among lawmakers or in the markets. of bonds.
There is a paradox in the latest eruption in the US Treasury market. In late trading, U.S. government bond yields rose nearly 5 percent for the fourth day in a row.
This is a level not seen since 2007, when the first cracks in the banking system occurred that led to the great financial crisis.
In a period of geopolitical uncertainty, the largest asset managers and traders would normally be expected to look for the safest havens, such as the dollar.
Gold tends to get a boost, but it is only of limited interest because the market is no longer deep or liquid enough. So U.S. bonds, or Treasuries, are typically the port of call for investors looking to protect wealth in case the world goes down the drain.
But not this time. The banking crisis, the pandemic, Ukraine and now the Middle East mean that the United States has joined the club of nations where the debt-to-output ratio is greater than 100 percent.
US Treasury Secretary Janet Yellen says there is no “dysfunction” in the Treasury market despite rising yields.
His comments are being treated with skepticism by bond watchdogs, the self-proclaimed guardians of stability.
Markets are readjusting after the era of free and easy money, and interest rates will stay higher for longer than anyone predicted.
They are doing the Federal Reserve’s job of slowing down a buoyant American economy that refuses to be tamed.
But if tensions rise in the Middle East, don’t be surprised if Yellen is right, as strong U.S. returns and security outweigh everything else.
Out of tone
The announcement of a “strategic review” by Hipgnosis appears to be an effort by founder Merck Mercuriadis to save his own skin.
Flabby Chairman Andrew Sutch (soon to be on the way) has been ineffective in reining in Merck’s exuberance.
The plan to sell some bright names, including Kaiser Chiefs, Shakira and Barry Manilow, to a rival owned by Blackstone and advised by Mercuriadis was a huge conflict of interest.
Before shareholders abandon him completely, they should recognize that he is a pioneer in song royalties, making many acquisitions before music’s biggest beasts, like Universal, started raising their values. It is disappointing that royalty income is being reduced and that the fund’s performance has never matched what was promised.
But there is intrinsic value in what you have created. With more professional, less fickle management and a tougher, more trustworthy board of directors, it should be possible to rescue something worthwhile from the rubble.
Investors should vote against the Blackstone deal, try to rebuild the company instead of liquidating it, and find a more financially astute CEO.
travel error
Any idea that Rentokil, the royal rat catcher, should raise its guard and move its share listing to New York following its £5.5bn purchase of Terminix last year, making the US its biggest market, should be rejected .
It’s true that revenue growth has been slow, but that can be fixed. Rentokil has been ridding Britain of pests since the 1920s and, with a new infestation of bed bugs among other things, it has huge opportunities for growth.
British companies have discovered that moving to Wall Street may get a loud cheer at first, but condemns foreign companies to anonymity.
