What’s bothering bonds?

Katie Martin (0:06)

Pushkin.

Stock markets are so hot right now. People keep telling me with a straight face that the biggest risk in stocks today is that we're not taking enough risk in stocks. Let's see how that one ages, shall we? Anyway, meanwhile, bonds not happy, like they're really not happy. Bond prices are down, which means borrowing costs are cranking higher all over the world. Meanwhile, the UK has done what it does best and manufactured a political crisis out of thin air. So UK government bonds or guilts are really feeling the heat. Today on the show, what's bothering bonds? Why do normies care? And how can the UK avoid making a bad situation worse?

This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist down in the dungeon at FT Towers in London, which is inexplicably freezing cold. I'm joined, as usual, by the big man in New York City, Mr. Rob Armstrong. Rob, do you have your special chair again?

Daire MacFadden (1:13)

Yes.

Katie Martin (1:13)

To stop you wiggling around?

Rob Armstrong (1:14)

They've got me locked in place again.

Katie Martin (1:16)

Good.

Rob Armstrong (1:17)

This is what it's come to.

Katie Martin (1:20)

I'm joined right here in the London studio by our newbie on the Unhedged newsletter, Daire MacFadden. You've been at the FT for like a month. You came from the Bank of England. You came from a proper job.

How are you liking our funny ways? Is it a very different place to be?

Daire MacFadden (1:38)

I mean, it's basically anarchic. I think my imagination of how a newsroom function would have been, an editor stood atop a command structure asking for this by five o'clock, this for tomorrow, and instead, it all just comes together with everyone just doing their work.

Rob Armstrong (1:55)

This is what I tell this to every time someone joins the FT. They say, you know, what do I need to know? And I tell them, there are no rules and no one is in charge. And they think I'm joking. And then they work here for a couple of months and they come back and they're like, oh, you weren't kidding.

Here we go.

Katie Martin (2:12)

Yeah. Let's just hope the editor doesn't hear this.

Rob Armstrong (2:15)

Yeah. Good heavens.

Katie Martin (2:16)

It's quite a grand building, Bank of England, isn't it? It's like part of old London. It's one of the bits of old London that didn't get bombed back in the day. It must have been kind of quite a special place to work.

Daire MacFadden (2:27)

Weirdly. I mean, from the outside, it looks like a beautiful building, but there are all sorts of downsides to working in a 100-year-old building now that's a single glazed windows. It's very drafty. You have to walk 10 minutes to get to any meeting room.

Katie Martin (2:42)

Yeah.

Daire MacFadden (2:43)

So it is a relief to work in a more modern office building.

Katie Martin (2:45)

We're dead glam here.

So look, we're the FT. We're a London institution. So let's start with the UK. The UK has got itself into a bit of a pickle here, right? So the UK government bonds market, which everyone calls the gilts market over here, like we borrow a lot relative to the size of our economy, but we're like really tiny in the global scheme of things. We're much smaller than treasuries. And so that does mean that we sometimes muck it up and gilts get really volatile. In a nutshell, Dara, what is going on at the moment?

Daire MacFadden (3:23)

Well, to start with, yeah, like you said, Katie, the size of the UK gilt market is a lot smaller than the treasury market. So there's a lot more of a risk that investors in gilts would lose interest in being invested in gilts. At the moment, the UK is in this very tricky situation of being at the center of both global dynamics that are pushing up yields internationally, and a sort of political crisis taking place in the UK now, which is adding to the yield on the longer dated gilts.

Rob Armstrong (3:53)

Can I provide some context here as the crass American? I am looking at a screen here that has all the European bond yields on them, the 10-year bond yields.

Katie Martin (4:07)

I know where this is going.

Rob Armstrong (4:09)

Nobody is close to the United Kingdom at 5.01 percent as of this morning. Italy, 3.78. Italy, all respect to Italy, but fiscal responsibility is not their national motto.

And I just don't understand why the United Kingdom is so out of whack with the rest of the continent.