On BBC News TV Channel this morning I happened on something that is absurd - at least to my ears.
The story goes thus:
UK budget promises tax cuts with no solid basis for funding public expenditure holes resulting from them. The bond market fears default in gilts so the price of these falls following selling by institutions holding a lot of them. This means that buyers of the sold gilts are getting a higher intetest return on these bonds. Now (here is my disconnect) this is said to be creating a problem for the UK government . . .
Where's the additional problem for the UK government due to this, since the cost of the bond coupon remains the same and the eventual repayment of say a £100 bond will be unchanged?
Is it because higher rates available in the gilts trade siphons away funds from competing financial markets and these are forced to up their rates in response to the new market conditions ?
Please excuse my macroeconomic innocence as I am but a humble rustic bumpkin engineer.
The story goes thus:
UK budget promises tax cuts with no solid basis for funding public expenditure holes resulting from them. The bond market fears default in gilts so the price of these falls following selling by institutions holding a lot of them. This means that buyers of the sold gilts are getting a higher intetest return on these bonds. Now (here is my disconnect) this is said to be creating a problem for the UK government . . .
Where's the additional problem for the UK government due to this, since the cost of the bond coupon remains the same and the eventual repayment of say a £100 bond will be unchanged?
Is it because higher rates available in the gilts trade siphons away funds from competing financial markets and these are forced to up their rates in response to the new market conditions ?
Please excuse my macroeconomic innocence as I am but a humble rustic bumpkin engineer.