Wednesday, 27 February 2013

What did the Romans ever do for us anyway?

“…apart from the sanitation, the medicine, education, viniculture, public order, irrigation, roads, the fresh-water system, and public health, what have the Romans ever done for us?”

- Monty Python’s Life of Brian
In keeping with the theme of the previous post we should note that gilts are up again today. That’s of only passing interest until the UK taps the gilt market to borrow once more, which will be next Tuesday. We’ll be asking to borrow £4bn until 2018 – just as we did a week ago last Thursday (14th February). Back then we paid an annual yield of 1.277% meaning the interest will cost £255m over the next five years. Next week, as things stand, our borrowing rate may well be less than 1.05% - meaning the interest would be just £210m.

What have we done to deserve this potential £45m reduction in borrowing costs? Equities are higher today, gilts have been downgraded – you couldn’t imagine a worse situation to be a gilt holder.

But Paul Tucker’s comments to the Treasury Select Committee mentioning the idea of negative interest rates have reminded investors of the risks of voting against the bottomless pockets of the Bank of England (despite the clear lack of support from the Monetary Policy Committee for the idea).

But perhaps most importantly the indecisiveness of the Italian electorate, so costly for them, has reminded the investment community that the creditworthiness of the UK actually remains pretty good!
Guy Foster
Head of Portfolio 

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