Guilty as Charged: Gilt Yields Explode

30-year gilts reach highest level since 1998

Our Elected Dictator has accumulated a plethora of nicknames over the past few months: Two-Tier Keir, Free Gear Keir, Chameleon Keir, Sir Submarine, No Idea Keir, Sir Flip Flop, Sir Abstainer, Inaction Man, Sir Sleepy, Sir Kid Starver, Keith, Sir Softie, Special K, Captain Hindsight, Farmer Harmer Starmer, Bad Karma Starmer, Queer Starmer, Keir Stalin, and Keir Wrong Un.

The most intriguing of these has to be Special K, since this is a nickname that Our Beloved Leader gave to himself. To a degree, one is inclined to feel some sympathy and pity for the Prime Minister, since he’s hopelessly out of his depth, as is the rest of the Cabinet. Unable to surmount criticism of dire incompetence, outright malevolence, incitement to class war, overt corruption, and betrayal of the British people, it seems unlikely we’ll ever have another Labour government again once this lot are out.

Of course, it was never a secret that Starmer and his fellow Trotkyist comrades would be hopeless; The Labour Party didn’t win an election because they inspire confidence or exude competence — they won it because their predecessors were also useless, and people were fed up of the chicanery.

Nevertheless, Starmer and his bedfellows aimed to capitalise on Truss’ September 2022 budget to argue that The Labour Party would be the party of fiscal responsibility. The Chancellor of the Exchequer, Rachel from Accounts (AKA Rachel Thieves / Gromit), made it clear that economic growth was her number one priority. Her plan to achieve this? Loosen fiscal regulations so as to be able to take on an inordinate amount of debt, grow the size of the state even further, kill the poor to save money, raise taxes, punish businesses with increased NI contributions, and seize the means of production. One might expect that someone who had studied PPE at Oxford ought to know a little more about Rothbard or Adam Smith; unfortunately, it seems even the top Russell Group universities have degenerated into Keynesian-Communist indoctrination camps.

Gilt markets explode

As a result, growth towards the end of 2024 was even lower than expected: growth was forecast to be a miserable 0.1%, but fell to 0.0%. When one considers that official CPI figures (which are manipulated by the ONS to favour increased government spending) put inflation at 2.6%, the economy is actually contracting — fast.

The bond markets have decided to fight back, with 10 year gilts having risen to their highest level since 2008, and 30 year gilts their highest level since 1998, when the debt load was just one sixth the size.

This amount of expenditure on interest payments is disastrous for the government, which has now pretty much bankrupted the entire country. The graphic below shows the government’s current largest expenditures. As may be expected, welfare, healthcare and state pensions are the three items that the government spends the most on. In fourth place, at 11.1% of government expenditure, is the interest on the national debt (this has nothing to do with paying down the principle). To put this into context, the government now spends more on servicing the interest on its debt than it spends on education, more than twice as much as it spends on defence, and almost three times more than it spends on public order and safety.

Rising gilt yields means that this 11.1% figure is set to rise even faster, because market participants are growing less inclined to lend money to the government, and the Labour Party refuses to shrink the size of the state. Some back-of-napkin Maths indicates that within a decade or two, servicing the interest on our debt could be the largest expense the government faces, ceteris paribus.

Insofar as finances are concerned, the Labour Party will not willingly neuter itself. As politicians are wont to do, they will put the short term interests of the party before the long term interests of the country. The state leeches off the private sector like a parasite, but it doesn’t seem like anyone with enough influence in the UK is currently adequately incentivised to whittle it down to size, à la Milei. The Civil Service would certainly oppose any such reforms. What seems far more likely is that Reeves will learn nothing, and her approach to correct an obvious and predictable problem will be to accelerate quantitative easing measures.

Therefore, the only thing that Reeves can do is pray that the sterling ponzi doesn’t implode on her watch, and if/when it does, she will be forced to engage in financial repression. The “independent” Marxist Bank of England will print money and purchase government gilts to artificially increase demand, thus lowering the interest rates the government must pay.

The trade-off here is that sterling will be significantly devalued relative to asset prices, inflation will once again rear its ugly head, the can will be kicked down the road, and inequality will be exacerbated. Unfortunately, there isn’t a viable alternative, because a combination of pride and unwillingness to endure short-term struggle prevents the British government from defaulting on her debts. Instead of shooting the phoenix in the head so that it can rise from the ashes, Labour will dose up the economy with morphine and keep it on life support — anything to protect 0.0% “growth”.

Our national propagandists are not reporting on this. Why? It strikes me that there are a few possible reasons:

1. The journalists at the BBC don’t actually understand what gilt markets are.

2. They are biased.

3. Both.

The most concerning possible explanation comes straight from Keynes himself, who believed that governments and central banks had a responsibility to manage media rhetoric, so as to dampen the “animal spirits” that could destroy faith in an economy. In other words, the BBC knows that this is a huge problem, but they are willingly ignoring it, for fear that covering the news would exacerbate it or trigger a crisis.

After all, when you look at the chart below, what does it tell you?

It tells you that the market believes that the British economy is totally fucked.