Jim Pickard Investors place their bets on a UK default


This Bloomberg chart tells a striking tale. Credit default swaps are a form of insurance on gilts. People buying UK government debt acquire CDS’s to protect themselves against the risk of the country becoming bankrupt.

In August, the price of CDS’s for UK gilts was just 18 basis points. By the end of last week it had soared to 68bp. As of today the figure has reached 87.5bp. (The yellow line is the UK, the pink line is Germany).

This is a huge signal from the markets about Alistair Darling’s pre-Budget report and the revelation that annual borrowing could hit £120bn within a year or two.

The City is shorting UK plc.


In fairness I should add that the stock market has roared ahead this morning with the FTSE-100 up nearly 5 per cent at one point. In part this is because of PBR expectations, which have pushed up some of the big retailers. It is also thanks to news that Citigroup, the US bank, is receiving a $20bn capital injection and guarantees for $306bn of distressed mortgage assets. UK banks are among the biggest rises so far today.