UK gilts are a must to avoid - PIMCO

It's going to be 'exciting' as the good ship UK founders…

UK gilts 'are resting on a bed of nitroglycerine': so what are the Tories saying about this?

By Gerald Warner Politics Last updated: January 27th, 2010
48 Comments Comment on this article

So, now we know what the market thinks of United Kingdom gilts. Bill Gross, co-founder and co-chief investment officer of Pacific Investment Management Co. (PIMCO), the world’s biggest bond fund, has told investors that UK government bonds are “a must to avoid”. While Britons were dancing in the streets to celebrate our economy stumbling into 0.1 per cent growth in the last quarter of 2009, Gross was recalling market sentiment to the real world.

“Gilts are resting on a bed of nitroglycerine,” he wrote (why does he not come off the fence and say what he really means?). “High debt with the potential to devalue its currency present high risks for bond investors.” He described the UK “with the highest debt levels and a finance-oriented economy” as being “exposed like London to the cold dark winter nights of deleveraging”. He recommended Canadian or German government bonds to investors.

We cannot say we were not warned. Early in the New Year PIMCO warned that if the British government continued with its present plan for reducing the budget deficit there was an 80 per cent likelihood of Britain losing its AAA credit rating. Now the current is drawing us inexorably towards the plughole, the vortex is swirling around us, but still our politicians refuse to waken up to reality. If future gilt sales fail as investors follow PIMCO’s lead and refuse to subscribe, then the yield on gilts will have to go up, with higher borrowing costs all round.

Britain now has the distinction of being included in PIMCO’s “ring of fire” on a chart that records a group of the most vulnerable countries. This is disastrous. But it is a disaster that was manufactured by Gordon Brown, from his reckless 2002 spendthrift budget to his totally ineffectual proposals for reducing government debt. So, what are the Tories saying about this? Where are Osborne and Cameron? Do they not want to make an election issue out of our country being thrown onto a fiscal “ring of fire” by Labour’s insane prodigality?

Not if it means proposing real, as distinct from cosmetic, cuts in public spending that might alarm the client state among the electorate, is the answer. So much for the Conservatives being the party that can be trusted with the economy. Lord Forsyth’s recent remarks that it should be possible to save £75bn of public spending over a parliament and that taxes should not go up are an isolated voice of reason, suggesting remedies that the markets will take seriously; but they find no echo among the Tory high command. Britain has been bankrupted by its politicians and the current drawing us towards the plughole is now building an irresistible momentum.


Book Reviewer
I'm not sure whether you can short gilts but it could be an interesting few weeks until the election shapes up.


Book Reviewer
This sounds very much like a self fulfilling prophecy - "We're saying that they're shoite. See we aren't buying them - so they must be shoite, Oh look - we said that they were shoite".

Bankers - gotta love 'em (or shoot/bomb/maim 'em)
There's plenty of fat to trim in 2010 just as there was plenty of fat to trim in 1979, last time the Tories took over from Labour.

Then, it was the nationalised industries. Coal miners who were the highest paid manual workers in the world. Car workers who brought camp beds in to work on the night shift. The Post Office that took 9 months to put a phone in for you.

Maggie destroyed Labour's trade union client state. Since 1997, Labour have constructed a new client state among the public sector, qangos and so-called charities.

Will Dave wield Maggie's knife at the 30% of the population who are living of welfare, the 20% of working adults who work for the government, the regional development qangos that cost billions but achieve nothing, the carbon footprint reduction managers and, for God's sake please, the Potato Council, sponsors of Kieth Chegwin's National Chip Week.

There will be riots. This time, it wont be miners chucking coal. It'll be transgender outreach coordinators chucking fake t1ts and Cheggers chucking those burnt, manky chips you find at the bottom of the bag. Does Dave have the balls to deal with them?


Book Reviewer
Last time the unions were fronted up by Herr Thatcher, we had a pitiful economy, were bound to the IMF and everyone and his brother was doing better than us.

Now we have a political ghost in power who are controlled more and more by the unions because they can't raise any working capital elsewhere and they have a throwback to Michael Foot's view of running the country in the current incumbent.

So we are going to have an election, the next government is going to have to slash the public sector and there will be discord, leading to union inspired riots. Bob Crow has been practicing.

Only difference to the last time this happened on a grand scale was that the unions were protecting British jobs against their export and there was a nationalist element to the support. Now it's the over coddled public sector wallahs and their cushy deals that will be striking whilst those more enterprising souls who got out and made something of the private sector will be against them. So it won't be nationalist, just divisive.

No matter what the public sector dullards would have you believe, their productivity over the past decade has dropped by over 3% and the private sector's has risen by 28%. However you put some one eyed halfwit in charge of the pursestrings with a fame whore as his so called boss, you are bound to get in a whole load of trouble.

I refer my learned colleagues to Squandered by David Craig.


Book Reviewer
"over coddled public sector wallahs" - last time I looked, the armed forces were in the public sector.

Be careful of what you wish for.
Yeah right - armed forces definitely in the "over-coddled ... wallah" catagory. Full of outreach workers doing meaningless jobs and contributing nothing. They will be the first into the polling booths to vote New Labour.

Or perhaps the next government will be able to distinguish between the valuable public services and the real drains on the economy. Hope they can, or the country is heading down the tubes.


Book Reviewer
The point that I was making is that the public sector is not some over weening maw that devours everything in it's path. I know lots of people in the public sector whose jobs make the work of government much more effective, the lives of individuals much more tolerable, and the work of the armed forces much more focused.

The number of "Outreach Workers", of whatever type, is limited - and if (God Forbid) you came home from a tour in less than perfect shape, you and your family might just be glad that they're there.

The private sector is not the answer tro everything, if it where the Armed Forces would no doubt have been put out to tender and Blackwood would haved an extra xtythousand employees.
Mr_Fingerz said:
This sounds very much like a self fulfilling prophecy - "We're saying that they're shoite. See we aren't buying them - so they must be shoite, Oh look - we said that they were shoite".
Followed swiftly by "Oh, look. Those are nice and cheap. I happen to have some money lying around which I've been meaning to invest. Hmmm.... what amazing coincidence."

Wouldn't be the first time speculators have used that one against us.


Book Reviewer
You might say that Carrots, I couldn't possibly comment....


Book Reviewer
Will it be the armed forces or the decent outreach folk who will be bleating? No, so they don't fall into the over coddled wallah classification.

Certainly never compared my soldiers like for like with some spoiny tit in the lower equality division of some council, working in a 'positive environment' and embracing diversity, final salary scheme and saluting their motto of entitlement.

The armed forces are getting struck by cuts, have done for decades. The current overbloated civil service needs to wake up to what the rest of us have to face on a monthly basis in the private world i.e. efficiency measured by revenue, accountability measured by earned rewards and deliverables measured by quantifiable results.

Bit broad brush but I have worked across both sectors and the culture of the local authorities, for example, is indicative of a mental malaise that rejects challenge. No, that's not the armed forces because I would choose a soldier over a civvie any day because you know they deliver.
Mr_Fingerz said:
The number of "Outreach Workers", of whatever type, is limited - and if (God Forbid) you came home from a tour in less than perfect shape, you and your family might just be glad that they're there.
On the other hand, you might live round my way. Our mental hospital is being closed down a bit at a time so the grounds can be sold to a property developer.

You have no chance of seeing a consultant psychiatrist unless you are sectioned, paying privately or seeking gender reassignment (for which there is a ring fenced budget).

People with severe mental illness like PTSD, suicidal depression and the beginnings of schizophrenia are supposed to see a psychiatric nurse to be prioritised for an appointment with a registrar. The average waiting time is about two years.

In practice, there often isn't even a nurse available so they get a half hour with a counsellor who can't even prescribe medication.

The counsellor does give out a list of self help books that can be borrowed from the library though. That's what happens to mentally ill ex-servicemen where I live. They don't even get a bottle of Prozac, let alone the treatment they need.

My chest swelled with pride though when I found out the hospital was funding outreach workers to hang around public toilets and other 'cruising grounds' to tell gay blokes that unprotected [edited] with other gay blokes can lead to HIV infection. Well fuck me. You learn something new every day.

Better still are the outreach workers who work with married blokes to help them realise that they are really gay and that they're in denial. Don't tell them to bugger off whatever you do or you might get done for a homophobic public order offence.
you can short gilts - if you want to do it directly then I would suggest one of the spead betting sites such as IG index, ODL or spreadex.

A fund manager friend of mine tells me that his 'one way bet' for 2010 is shorting US treasury bills
Greece should never have been allowed into the Euro Zone, it fiddled it's sums and folk looked the other way.
The UK's problems are all home grown and I do believe then when the 'Money Men' get what they want from the Euro, UK will be next on the list for treatment.
Probably be after the next election, a Labour win will send the pound sliding, a Tory win may buy some time but if Dave, who inspires me like my last dose, does not do something drastic and permanent then the pound will be worthless quite soon.
What Labour have admitted is bad, frightening, what the next gov will find will be worse.
Matters like the PFI have been kept off the account books and I do suspect the Good Old Gord has hidden more.
Having had some experience in dealing with pimco I would take what they have to say with a pinch of salt they weren't exactly top notch either when I last had to speak to them.

Me 'Where's the money from the sale we placed with you 4 months ago?'
pimco 'We sent it'
Me 'No you didn't its not in our bank account'
pimco 'yes we did, goodbye.'
jonwilly said:
Greece should never have been allowed into the Euro Zone, it fiddled it's sums and folk looked the other way.

Looks like the games up for Greece…

"……Funds flee Greece as Germany warns of "fatal" eurozone crisis

Germany has triggered a near-panic flight from southern European debt markets by warning that there will be no EU bail-outs, even though it fears the region's economic crisis has turned dangerous and could prove "fatal" for the entire eurozone.……"
Come on the drop in the Euro.....I've been waiting for this for the last 18 months.
Whilst I am no Financial wiz, it has been apparent that the euro banks have been desperately trying to keep the euro floated above its actual value. We had no option to take the hit on sterling and couldn't hide behind a common currency and artificial interest rates.

Like I said, I am no expert but I am sure one of the FINWO's will be along soon to put me right.
Ahh a Greek (and French) Tragedy in the making:

"Greek banks selling CDS (Credit Default Swaps) would make some sense. It’s essentially a win-"win bet. If Greece doesn’t default on its debt, protection-sellers will likely earn a nice profit. If it does, well, the Greek banks will probably be crushed anyway."

Edited to add:

This also explains why the French are sooooo keen on a European bailout of Greece: the majority of that exposure is for the account of Credit Agricole, which is already in a bit of merde over Regulatory Capital issues.
Ancient_Mariner said:
There will be riots. This time, it wont be miners chucking coal. It'll be transgender outreach coordinators chucking fake t1ts
If Sunny D sells tickets and media rights, we could halve the national debt.

Thanks for that AM - fair made I chuckle.

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