UK’s cost of borrowing in international markets exceeds that of Greece and Italy | bank of england

Britain’s cost of borrowing in international money markets jumped above rates paid by Greece and Italy as traders priced in a higher risk of default on Britain’s government debt.

After rampant selling since the Kwasi Kwarteng mini-budget last Friday, UK five-year government bonds have suffered a dramatic fall in value, which has had the effect of doubling the interest rate on the debt since august.

The five-year bond rose to 4.6%, which compares to Italy’s 4% and the 4.1% interest paid by Greece. France maintained a rate of 2.3% while German five-year bonds traded with an interest rate, called yield, at 2.03%.

Former Bank of England Deputy Governor Charlie Bean said it was significant that bond markets now see Greece and Italy as safer bets after several days of panic selling.

A chart comparing five-year bond yields, with the UK shown in red, Italy shown in gray and Greece shown in blue

“It is now more expensive for the UK government to borrow than Italy or Greece, which we have traditionally viewed as not quite basket cases, but certainly underperforming sovereign entities.”

He said the central bank should have reacted to market turbulence by calling an emergency meeting, and that the lesson of urgent interventions was “you go big and you go fast”.

He added: “On this occasion, if I had still been at the Bank in my role as deputy governor, I would certainly have advised the governor that I think this is one of those occasions where it could have make sense [to call a meeting].

“The bottom line is that if you call it, you have to take some big action.”

Bank of England Governor Andrew Bailey issued a statement on Monday stressing the central bank’s willingness to raise rates in its fight against inflation, but refrained from announcing an emergency rate hike. rate as some had expected.

Some analysts said the sharp rise in UK short-term borrowing rates reflected concerns about the outlook for the economy and rising debt levels ahead of the upcoming election.

Falling costs relative to other countries for 10-year bonds showed there was still confidence in the UK’s longer-term ability to pay interest on its debts.

The yield on UK 10-year bonds was 4.1%, while lenders demand a more expensive rate of 4.5% for Italian bonds of the same duration and 4.7% for Greek 10-year bonds.

A Reuters analysis has found the jump in UK bond rates this month outpaced any monthly movement in the Bank of England’s comparative records for UK 10-year government debt in data dating back to 1957 .

International investors hold the bulk of UK government bonds, although the Bank of England is also a major lender to the UK through its £895bn quantitative easing programme.

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