UK government bond prices surge on hopes of Brexit

Remain and the Treasury like to attribute all market moves to hopes and fears of Brexit. They  should be thrilled to be proved wrong on government interest rates. They  said they would go up if Brexit seemed likely.  Instead, as  pro Brexit  polls have improved since the turn of the year UK government borrowing rates have plunged. The 10 year rate is down from 2 % to 1.2%, a fall of 40 %. Bond prices have surged.

 

Trying to talk us into higher rates has not worked.

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47 Comments

  1. Richard1
    Posted June 14, 2016 at 6:03 am | Permalink

    It is odd that falls in the gilt yield are treated as a sign of market worries – whereas of course yields are falling because gilt prices are rising. But, Sterling volatility is at record levels due to the probability of Brexit. I think we need to be realistic – if there’s a Brexit vote there it looks likely there will be volatility and cost in the short term. Sterling looks likely to take a significant hit. Probably the stock market also.

  2. bigneil
    Posted June 14, 2016 at 6:10 am | Permalink

    Interest rates don’t affect me much, having no money, but then again I’m not an illegally here Albanian gangster getting £2k a month benefits as a reward for getting here and dealing drugs.

  3. Denis Cooper
    Posted June 14, 2016 at 6:53 am | Permalink

    Well, JR, you can’t eat UK government bonds, and finding something to eat is going to be the most pressing concern for the few survivors of the global economic meltdown, Third World War and end of western civilisation which must ensue if the citizens of these small insignificant off-shore islands defy their betters by voting to change their existing treaty arrangements with their neighbours.

    Or in fact even voting to not change their existing treaty arrangements, as the Irish found out that can also have catastrophic consequences:

    “”We must sow terror in the hearts of the Irish people,” a senior Irish politician said to Irish Independent journalist James Downey in 2001, explaining how the Republic’s Government would reverse the Irish people’s No vote to the EU’s Nice Treaty that year and turn it into a Yes vote to the same treaty the year following.”

    Sure makes you think, doesn’t it.

  4. Lifelogic
    Posted June 14, 2016 at 7:02 am | Permalink

    Indeed and the markets are surely right. We are a far better credit risk outside the EU, with out the huge fee to pay, with far cheaper energy, far less red tape, a restoration of democracy and well away from all the fall out of the Euro fiasco. With a nimble government democratically able to act in the interest of the U.K. and selective quality immigration and free trade with all the World.

    Even the additional advantage of a sound Chancellor, instead of the current economic illiterate. What is not to like?

    • Lifelogic
      Posted June 14, 2016 at 7:09 am | Permalink

      Odds well under two now and falling, still looking forward to my willings at 4.5:1

      What calamities will remain come up with next as they get more and more desperate. The BBC still endlessly telling us we will lose out economically and that virtually all the “experts” agree on this.

      Rather like the climate experts so beloved by the BBC who all told us it would warm for the past 18 years when it has done no warming at all. And that oil and gas prices would rise hugely.

      Largely Government/EU paid experts suffering from government group think.

      • Lifelogic
        Posted June 14, 2016 at 4:20 pm | Permalink

        My winnings – why do these computers think they know best?

  5. CHRISTOPHER HOUSTON
    Posted June 14, 2016 at 7:08 am | Permalink

    Our free media also attributes every move upwards of everything to “lesser fears of Brexit” and downwards to “increased fears of Brexit, causing uncertainty” I’m almost sure one of the Remain’s fully paid up members thinks “Heaven is UP there ” because God is convinced its a Remain vote on the 23rd, on Thors-day. So there!

  6. Lifelogic
    Posted June 14, 2016 at 7:26 am | Permalink

    54% to 46% in favour of Brexit in the latest poll, and surely the leave voters are more likely to vote too. Still you can get odds of just under 2 though. Even the young and the women are in favour of leaving and restoring democracy for themselves, their children and grand children and the richer and less crowded UK that will ensue.

    Can we have a new liberation bank holiday on June 23rd (nearly the longest day too) post the vote please?

    Liberation of the Tories from Libdem leadership and economic incompetence and the country from IHT ratter Osborne too.

  7. Lifelogic
    Posted June 14, 2016 at 7:28 am | Permalink

    Of course we will still struggle to get out with this, remain dominated, rabble of Career MPs!

  8. CHRISTOPHER HOUSTON
    Posted June 14, 2016 at 7:36 am | Permalink

    The BoE must have identical models to the Treasury and the Fed, probably the ones you used to stick together as a kid to make battleships and fighter aircraft.

    There is the Fed Reserve meeting on Wednesday. Janet Yellen will doubtlessly talk for the best part of one hour and basically say the Fed will continue to plod on and keep an eye on things as they might change and then again might not change. The BoE, in lockstep, will say much the same right afterwards after having an intense brainstorm and considerable research, as per usual.The BoE will also express worries about Brexit and be backed up unless the French airline workers are still on strike along with other French workers, by the landing of IMF’s very own French lady of the IMF Ms Lagarde.

    • Know-dice
      Posted June 15, 2016 at 7:48 am | Permalink

      Economic “Stickle Bricks” sounds about right 🙂

  9. Martin
    Posted June 14, 2016 at 7:55 am | Permalink

    We do have the empire to pay for

    http://www.9news.com.au/world/2016/06/14/10/22/mother-nature-could-blow-brand-new-airport-off-remote-island

    Is the real cost of this farce more than the amount spun by the colonial office?

  10. Anonymous
    Posted June 14, 2016 at 8:05 am | Permalink

    We have to assume that there will be no recession if we Remain.

    It is law.

    • zorro
      Posted June 14, 2016 at 4:26 pm | Permalink

      Exactly – In fact you will remember that there has never been a recession, high interest rates, high inflation or bad weather whilst we have been members of the EU. So why would we take such a leap in the dark and endanger these paradisaic conditions according to my mate, David Cameron who always keeps to his cast iron pledges……

      zorro

  11. Caterpillar
    Posted June 14, 2016 at 8:09 am | Permalink

    There seems to be a rush to sovereign debt as the likelihood of Brexit draws nearer. It is odd that much of the fear in the markets might be attributed to the two treasury reports and perhaps Osbonre, Carney, Cameron hype. Class Business School’s Professor Blake’s review of the treasury modelling (http://www.cass.city.ac.uk/__data/assets/pdf_file/0007/320758/BlakeReviewsTreasuryModels.pdf) makes a worthwhile 60 page read. In the conclusions on page 57 Blake states “The two Treasury reports are two of the most dishonest and deceptive public documents I have ever read. The whole exercise should therefore be seen for what it is – an elaborate charade. What is happening is no different from Tony Blair’s ‘dodgy dossier’ on Saddam Hussein’s weapons of mass destruction. These two reports will rightly gain the same status of ‘dodgy dossiers’. “

  12. Denis Cooper
    Posted June 14, 2016 at 8:15 am | Permalink

    Off-topic, I’ve just been looking at this:

    http://www.facts4eu.org/news.shtml

    and learned something of which I was previously unaware – that the eurocrats have allowed the island of Mayotte to become part of the EU.

    I hadn’t even heard of it, but suddenly there were 227,000 additional EU citizens, all with the automatic right to come and live and work in my country.

  13. Bert Young
    Posted June 14, 2016 at 8:24 am | Permalink

    No-one will be surprised by this reaction in the Bond markets ; the international risk takers know the havens to bank on .

  14. formula57
    Posted June 14, 2016 at 8:41 am | Permalink

    Some of us are not so keen on lower interest rates and remember fondly your blog of May 2014 (@ http://johnredwoodsdiary.com/2014/05/24/time-to-put-up-interest-rates/ ). Alas, since then interest rates have fallen.

    And not all is revealed by market data. The Chancellor has not disclosed (and in fairness, he could not, being bound by (but likely very grateful for) customer confidentiality restrictions) what must be worrying and unwelcome news to him that in recent months Government savings products have suffered a truly vast withdrawal of funds as I have reallocated a very sizeable portion of my personal wealth away from UK Government risk, done in part lest after all Bremain were to win.

    • zorro
      Posted June 14, 2016 at 4:29 pm | Permalink

      Money has no patriotism eh formula57 😉

      zorro

  15. eeyore
    Posted June 14, 2016 at 9:39 am | Permalink

    If a bond price surge means anything at all vis-à-vis Brexit, it’s a rush for a safe haven. Big money’s private opinion polls must be pointing firmly toward Leave. A slump in the pound would confirm the suspicion. Buy gold (if Mr Soros hasn’t already bagged the lot).

  16. Chris S
    Posted June 14, 2016 at 9:43 am | Permalink

    What we need is Paxman or Neal to interview the Chancellor and ask him to explain why our borrowing rates have plunged.

    Bet he won’t answer the question !

    • Lifelogic
      Posted June 14, 2016 at 4:18 pm | Permalink

      I doubt that Osborne or Cameron would ever agree to be interviewed by someone who might ask them anything sensible or challenging and expect proper answers that is why we always get Marr types.

      What would you like to impart to the nation next Sir? That is very interesting and anything else Sir?

    • Richard1
      Posted June 14, 2016 at 4:19 pm | Permalink

      He’d probably just point out that bond yields have fallen everywhere and focus on sterling appearing to fall and volatility rise the more likely Brexit looks. We have to accept there will be a short term hit in the event of Brexit – thats the way the market is pointing.

      Reply Why then did the Treasury forecast higher government borrowing costs when it has been all the other way to lower costs?
      Why is sterling still higher than end February before anyone in the markets thought Brexit could win?

      • Richard1
        Posted June 14, 2016 at 9:11 pm | Permalink

        I can’t speak for the Treasury but I suppose they argue a higher risk premium means higher borrowing costs & on the basis of their (perhaps flawed) model there will be a higher risk premium. It’s difficult to isolate the reasons for currency movements. You are right sterling has risen since end Feb but in the last few days as the odds of Brexit have risen from c 25% to >40% it has fallen. Volatility is also high. That seems to mean at least Skme turbulence in the short term – wouldn’t you agree?

  17. Anonymous
    Posted June 14, 2016 at 9:44 am | Permalink

    http://uk.reuters.com/article/uk-britain-eu-court-idUKKCN0YZ1ZW

    A few more headlines like this could start to swing it back to Remain.

    It will be lost on most that no court should be more supreme than our own.

  18. Dioclese
    Posted June 14, 2016 at 9:49 am | Permalink

    Blimey, John! These are facts!

    The truth just won’t do you know 😉

  19. acorn
    Posted June 14, 2016 at 10:11 am | Permalink

    “And, now, perhaps, this lot have exceeded their own capacity for nonsense. I refer to the latest Convergence Reports published by the European Commission and the European Central Bank. Hypocrisy has no limit it seems. The Eurozone and EU is now firmly entrenched in austerity and deflation and the policy makers think that is the desirable benchmark for others to aspire to. Who could have invented this stuff! And, in relation to the upcoming vote in Britain – how the hell would any reasonable citizen want to be part of this sham outfit (EU) if they had a choice.” (Prof Bill Mitchell)

  20. hendrick Juggins
    Posted June 14, 2016 at 10:19 am | Permalink

    Dear Mr Redwood,
    I am appalled with your statement. I am not surprised most Brits don’t understand bond markets but I tell you one thing, Falling bond yields mean RECESSION!! It is another thing to lie to your voter

    Reply I am pointing out another false Treasury forecast.

  21. NickW
    Posted June 14, 2016 at 10:26 am | Permalink

    Rumour has it that Juncker is going to intervene in the referendum because of unfavourable polling.

    The man who said;

    “When the situation is serious you have to lie”.

    and;

    “Of course there will be transfers of sovereignty. But would I be intelligent to draw the attention of public opinion to this fact?,”

    and;

    “We decide on something, leave it lying around, and wait and see what happens. If no one kicks up a fuss, because most people don’t understand what has been decided, we continue step by step until there is no turning back.”

    and;

    ” I ‘m ready to be insulted as being insufficiently democratic, but I want to be serious … I am for secret, dark debates”

    Source; Telegraph.

    http://www.telegraph.co.uk/news/worldnews/europe/eu/10967168/Jean-Claude-Junckers-most-outrageous-political-quotations.html

    If you type “When the situation is serious you have to lie” into Google, you get around 165,000,000 results, and rather a lot of them have the word “Juncker” in them.

    • Chris S
      Posted June 15, 2016 at 3:58 am | Permalink

      We may hear from Junckers in the next week.

      Last week Der Spiegel reported that, when Cameron begged Junckers to keep out of it, Junckers agreed that he would – as long as the polls were still going in favour of Remain.

      If they weren’t, Junckers insisted that he reserved the right to speak out during the last week.

      So, if we do hear from him, we will all know why !

  22. D. Krilleke
    Posted June 14, 2016 at 10:44 am | Permalink

    Surely you’re joking, Mr Redwood!

  23. S
    Posted June 14, 2016 at 11:26 am | Permalink

    It has nothing to do with “Hopes of Brexit” – it’s “WORRIES”. Interest rates in the near term will fall if the market expects a recession and the BOE being forced to cut interest rates to try to stimulate the economy.

    So if Brexit happens, the near term interest rates would likely fall. So will sterling, which will increase inflation over the medium to long term. So a recession, combined with higher inflation will make the government debt/ GDP ratios look unsustainable (like in Greece), and THEN you will see your rise in bond yields as investors FLEE gilts.

  24. Lifelogic
    Posted June 14, 2016 at 12:18 pm | Permalink

    I assume we will get all sort of last minute promises as be move towards Liberation day on 23rd.

    The lesson is clearly that the more we look like voting to leave the better the promises we will get. So no reason even for people who want to remain to vote anything other than Brexit.

  25. D.Krilleke
    Posted June 14, 2016 at 12:26 pm | Permalink

    You have got to be kidding, Mr Redwood!

  26. Horatio
    Posted June 14, 2016 at 12:49 pm | Permalink

    Absolutely absurd interview on daily politics. Rachel Reeves speaking constantly over Sir Digby re: single market and tarrifs. Who would know more I wonder? typically biased moderation from Jo Coborn who allowed this screeching and prevented Sir Digby from pointing out the utterly obvious lies in Reeve’s argument/monologue.

    She then told him he kept interrupting because he was a typical middle aged white man, a ridiculous slur. Outrageous bs. He did very well to keep his cool. What a hideous creature she is. Absolutely obnoxious. Wedded to magic money tree economics and admitting that even though the constituents she represents are for Leave, she will ignore them!

    Labour’s mass, uncontrolled immigration hens are coming home to roost. It’s massively vital to keep pushing the immigration and public services trump card as it’s ensuring a labour leave vote. Hope Gove is stronger on this, this evening. When will the PLP realise that Corbyn is more representative of the party in the country than they are. Just as the many faux sceptic Tory MPs will feel the wrath (perhaps desertation) of their constituents at the next election the ‘third way’ Blairite PLP should understand that they are representatives and not delegates and that their time is numbered.

  27. Richard1
    Posted June 14, 2016 at 2:29 pm | Permalink

    I just watched an exchange between Digby Jones and Labour’s Rachel Reeves. Both interrupted each other but Ms Reeves delivered this sexist and demeaning insult to Lord Jones: “you’re just a typical middle aged man who likes interrupting women”. Imagine if the exchange has been the other way round! It would surely have been Lord Jones’s last appearance on the BBC.

    Ms Reeves’s argument for Remain boiled down to: if we leave we can’t be sure there won’t be tariffs on trade with the EU as we “won’t have access to the single market”.

  28. Lifelogic
    Posted June 14, 2016 at 2:29 pm | Permalink

    Once again the establishment “experts” are clearly talking group think lies and utter drivel.

    Cheaper energy, no EU fees, quality only immigration, control of our borders, free trade with all the World, real democracy, nimble democratic government acting in the UK’s interests for a change …. what is not to like from an economic point of view about Brexit?

    • Richard1
      Posted June 14, 2016 at 4:23 pm | Permalink

      Is this realistic? Most people voting for Brexit, it seems based on polls, are doing so because they think it will reduce immigration, not because they want a low tax / free trade govt (unfortunately). Green crap was implemented enthusiastically by the Labour govt, with Conservative support, and has continued through the coalition and only now is beginning to be cut. We cannot blame the EU for green crap – that has been a home grown problem.

  29. Roy Grainger
    Posted June 14, 2016 at 2:57 pm | Permalink

    The flight to safety due to Brexit risk is a drop in the ocean to what will happen if Trump pulls ahead in the polls, then Osborne can tear up all his forecasts.

  30. forthurst
    Posted June 14, 2016 at 2:58 pm | Permalink

    The main driving force behind Remain is neoliberal multiculturalism; hence article in FT entitled “Turkey’s EU accession: we stop it at our peril” and it goes on to say “It is sad how anti-Turkish rhetoric and jingoism are so easily flowing off British and other western politicians’ tongues these days, with Turkey seemingly appearing as the whipping boy of Europe. So it is ironic how Brits and many continental Europeans are quite happy to go in great numbers to Turkey every year, to enjoy Turkey’s great hospitality and the common history of European and Asian civilisations in great cities such as Istanbul.”

    What is ironic is that the FT is so besotted with destroying our English Culture and heritage that it uses the most specious argument possible to justify Turkey’s accession.
    etc ed

  31. Iain Gill
    Posted June 14, 2016 at 3:52 pm | Permalink

    Where is the party arranged for when vote to leave wins?

    Reply There a lot of time and many events before polling day.

  32. Iain Gill
    Posted June 14, 2016 at 4:31 pm | Permalink

    Can we have the navy on standby to kick the Spanish boats out of our fishing grounds as soon as the result is announced? please…

  33. CHRISTOPHER HOUSTON
    Posted June 14, 2016 at 6:01 pm | Permalink

    Off Topic;
    From the bits an pieces of footage struggling to emerge via our media from the Home Affairs Committee interview with Mr Livingstone today, I would say it is not a good advertisement for the UK Parliament to be the guardian of the sovereignty of anywhere but say the islands of Lilliput or Blefuscu.

    I see one or two Parliamentary committee interviews with various people. Much grandstanding goes on from the questioners. Some pretty well lower-fifth debating posturing. Even when the subject matter is fit to be discussed at all, most questioners appear devoid of the personal understanding required to ask any questions whatsoever let alone understand the answers.
    In this particular meeting with Mr Livingstone, the Committee should have the costs of electricity, heating and other oddments plus any fees and expenses deducted from their salaries at source and then each fined in accordance with rank of a sum not less than one months salary; given a formal warning to behave properly in future and not bringing the UK into disrepute.

  34. forthurst
    Posted June 14, 2016 at 8:21 pm | Permalink

    Should we decide to Brexit, it is essential that CMD and Osborne are removed very quicky, otherwise there is a danger that they would deliberately engineer a depression and then call a second Referendum to give us the opportunity to get the right answer; it goes without saying that other forces without and within will machinate likewise. On June 24th, Jack will not be free; he needs to continue working hard for total victory over the globalist white nation haters.

    • Chris S
      Posted June 15, 2016 at 1:46 am | Permalink

      Unfortunately a leadership contest will take some time as carry out just at a time of uncertainty. Not good for the markets.

      The best thing would be for Cameron to stay but appoint Gove as Chancellor with Boris as Foreign secretary. A fatally damaged Cameron could then take a step back and allow those two to conduct the Brexit negotiations.

      Not sure when it would be best for the leadership contest should take place.

      Of course there have to be roles for our leading Brexit experts. Would our host want to be Chief Secretary to the Treasury or run the renegotiation strategy ?

  35. CHRISTOPHER HOUSTON
    Posted June 15, 2016 at 1:12 am | Permalink

    Off Topic then not:
    I have just watched a recording of a Telegraph Debate on You Tube between Boris, Priti, and, Salmond/ Kendall. Awful. The desperation and panic of the Remain Campaign is evidenced by their constant and continual interruptions and ad hominem attacks.

    I wonder if in the back of Remain minds they believe or think or nightmare that unless they fail to fool the British into voting Remain that somehow they will be hanged publicly for treason or worse: made to listen to ten minutes “wisdom” from the Bank of England. Well, that is how they are behaving,shouting , personally abusing, bullying, even audience questioners, over-talking their replies and even their questions.

    We shall not hang them. No fear. But their loud unreasonable arguments may be played for half of one hour in the cells of captured terrorists to extract information, subject to the absence of the European Court of Human Rights and its banning from interference in our internal affairs. Firm but fair.

  36. Chris S
    Posted June 15, 2016 at 3:47 am | Permalink

    We thought Tusk’s prediction of Brexit causing “the end of Western Civilsation as we know it” was as bad as it would get but now Osborne has regained top billing with his draft “emergency budget”.

    This might be just about be considered a possible reaction to Brexit except that it is to be presented jointly with Alistair Darling ! My contempt for Osborne has reached a new height.

    Remain have so obviously learnt nothing, continuing to treat voters as complete idiots. Almost every voter in the country is going to see this as the ultimate expression of Project Fear. Unless, of course CMD can think up something, anything, even worse to try and scare us with when the polls tell them that this hasn’t worked.

    We are now approaching 10 minutes to midnight and we have Labour suggesting that a future UK government, even a Labour one, could put FOM back on the EU agenda next year !

    We have Deputy Leader Watson backing Ed Balls in what is a direct challenge to Corbyn who we know is even more pro-immigration than he is anti-EU.

    Everybody knows that there is absolutely no way the EU is going to water down FOM.

    EU politicians have been saying as much this week, even when faced with the growing poll data indicating we may well be heading for Brexit. Merkel and Co will not backtrack and even Cameron knows that voters will not treat any sympathetic noises emminating from Brussels or Berlin seriously. Quite the opposite, in fact.

    The combined forces of Labour and the rest of the Remain camp are either clutching at the thinnest of straws or again, treating us for fools.

    I suspect it is the latter.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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