We spotted the rapidly rising cost of insuring UK gilts against default in this blog on November 24.

Today the Tories pointed out that the relevant figure (credit default swaps) is now twice the cost of insuring the debt of McDonald’s, the fast food chain.

I liked this take on the story from Bloomberg:

“Britain risks being viewed pejoratively as a banana republic “apart from the technical disqualification that we have a monarch and so cannot be a Republic, and it’s too cold to grow bananas anyway,” says Sean Corrigan, who helps oversee about $8.5 billion as chief investment strategist at Diapason Commodities Management SA in Lausanne, Switzerland.”

UPDATE

The response from a government person: “Obviously there is something odd going on in CDS market. But what matters for taxpayers is long-term gilt yields, which remain very low. It’s a point Dave Ramsden (MD of the Treasury’s new Macroeconomic and Fiscal Policy Directorate) was making at Treasury select committee today.”

Lord Myners made a similar point yesterday.

This is what Myners said: “The noble Lord, Lord Higgins, asked how we will finance our debt going forward. We do so from a position where the cost of borrowing is at a lower rate in nominal terms - the long end of the gilt curve - than it has been for 40 years. We are in a position where there is a serious appetite for borrowing and buying government securities.” 

December 9, 2008 5:53pm in Bank of England, Banks, Business vote, Credit Crunch, Economy, Gordon Brown, Recession, Treasury, UK economy, UK politics | Comment