The fact that our bond yields are rising is actually good news where government bonds tend to drop (so their yield rises) on an economic recovery, where people sell them to invest where they can get better returns. The other reason is inflation with £375bn of QE money sloshing around the system, so bondholders are quite rightly worried about their yields being below this, so they are losing money. Germany won't allow the Euro to have similar money expansion yet, so inflationary pressures are lower. At some point the votes from France and the PIIGS will outvote the German block at the ECB and then the printing presses will be set into overdrive so they can inflate their 100%+ of GDP sovereign debts away. Germany's reaction to this will be interesting.
The other reason why bond yields have gone up is that over at the Fed, Benny and the Inkjets is threatening to turn a few off to taper the $85bn a month of QE. This is rattling many West Ham supporting debt junkies where they won't get such a big monthly fix to continue to blow bubbles, like in the current equity markets.
The possibility of the tapering of US QE is already having repercussions around the world in emerging economies, especially in India with a full blown Rupee crisis, and to a slightly less extent in Indonesia and other Asian countries along with Brazil. The world is a very different place from the last Asian crisis in 1997/8 where emerging economies now account for over 50% of global GDP. Where the emerging countries currencies are dropping against the dollar, the US has said that is their problem, but this flippant comment may come back to haunt them as a big problem is that with low US interest rates compared with their local currencies many companies in these countries have taken out low interest rate loans in US dollars. With earnings in their local currencies and loan repayments in strengthening US dollars, what could possibly go wrong?
Indian industry has $100bn of such loans that have not been hedged against currency changes.
What has been interesting is that the US have cut their budget deficit by 2.9% since January and they are still growing. Austerity in the UK is a myth, where every year Government spending has gone up not down, the increase has just not been quite as fast Labour planned.
The government's budget deficit has actually increased slightly over the last 12 months. Cuts that have been made in non-ring fenced departments have been for three main reasons: To cover the ever increasing social security budget, the government's ever increasing interest bill and to restore some of the capital expenditure of infrastructure that was reduced by the last Government.
So, although the economy is certainly looking up for the UK and US and after 5 years of economic recession / depression this has to be good news, lets hope other problems around the world don't hamper our growth.
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Topic: UK 10 year gilts hit 3% (Read 1181 times)