Am I missing something or is the yield rate really just effectively the market rate on bonds that the Eton cokeheads in the city are willing to buy? And if it goes too high the UK enters a debt price spiral that the incumbents will be blamed for? And somehow this isn’t seen as a national security issue, that it would take relatively little coercion in the bond market to destabilize the entire country?
I would actually just talk about conscripting the wealthy into purchasing mandatory low interest bonds, under threat of simply taxing them the equivalent value - and selling it as civic duty.
@hughrawlinson no, that’s basically it. Also there’s nothing stopping China deciding to flood the market with cut price bonds to force the price down.
@hughrawlinson how much is "relatively little" coercion? There's about £2.6 trillion of gilts in issuance; historically there have been some obvious attempts to manipulate the market and they've not really gone well, eg this dude who tried it on with one single bond (never mind the whole market)
@doop I guess “something that a few very influential people could manage” - a few reports in the FT for example could have an effect on the price. And many nation states could hide enough transactions to have a serious effect on the price in innocuous parts of their budget.
@hughrawlinson if something inflammatory wound up in the FT and set off a crash then it’s explicitly the Bank of England’s job to intervene and stabilise the market- as they did eg with the Liz Truss incident.
If you’re a nation state and you want to buy lots of gilts then you’ll also need to buy lots of sterling for them, which will do exciting things to your own exchange rate. In any case, you still have to buy the bonds from someone (or sell them to someone), and they will notice: in the primary market there are fewer than two dozen licensed market makers and half a dozen inter dealer brokers.
If you want to build up a large bond position without having to deal with the (significant) operational problems of buying or selling large amounts of gilts then you could do it through the futures market, but then you have the problem that the exchange knows exactly who you are and what you’re doing.
Soros pulled off his stunt in 1992 in part because the FX markets are more liquid, less transparent, and much less heavily regulated than the bond market. I’m not saying it would be impossible to do this in the bond market, but it would be tricky, and most of the obvious routes have been tried.
I think you’re absolutely right in the sense that the bond market is very underrated as a part of the economy - the mainstream press in particular has a weird obsession with pointless fluctuations in the equity and fx markets while disregarding much more significant moves in gilts, although it’s got a little bit better since 2008.
@hughrawlinson (if you really want a peek at a horrible infrastructural mess underpinning vast economies, it’s the repo market you want)