Bonds feel the Trump pain: A tide of uncertainty is rolling in and Britain is vulnerable, says ALEX BRUMMER
Donald Trump left behind a fine mess on Wall Street as he escaped to Davos. His use of the tariff threat to further his Greenland ambitions spooked over-exuberant markets.
It is no surprise that equities are in retreat. What is more disturbing is the way bond markets are reacting as investors flee the two largest G7 nations, the US and Japan.
In much the same way as markets have chosen to ignore the AI-debt bubble, they have, until now, chosen to forget record levels of government leverage among rich nations. America’s debt ended the year at 124.5 per cent of national output.
In Davos, the US commerce secretary Howard Lutnick, a former Wall Street trader, dismissed concerns on the grounds that the US economy would grow at an annualised rate of 5 per cent in the first quarter.
The prospect of a diplomatic and tariff war across the Atlantic is raising alarms, with the yields on US government 30-year bonds jumping by the largest amount since May last year.
Then it was feared that Liberation Day tariffs would cause an all-out trade war between the US and China. Japan usually steer clear of implosions in the debt markets because of the willingness of ordinary citizens to put their trust in the state.
Threats: US President Donald Trump's use of tariffs to bully countries opposing his plans for Greenland has rattled global bond markets
There is concern that Japan’s prime minister Sanae Takaichi will fight a snap election on an agenda of increased government spending.
Amid the storms, Britain is a piggy-in-the-middle. The pound gained, climbing to a shade under $1.35 in latest trading. But the latest jobless data, showing payroll numbers dropping and youth unemployment rising, did nothing to calm nerves.
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The 30-year gilt yield jumped to 5.23 per cent, the highest level since before the Budget.
Chancellor Rachel Reeves could again face questions as to whether her fiscal rules are robust. A tide of uncertainty is rolling in and Britain is again vulnerable.
Sink hole
One could almost hear Britain’s hapless water minister Emma Hardy drowning in a phone-in on the BBC’s Money Box.
Asked whether Britain’s privatised water and sewage providers should be renationalised, she argued that the Government’s ‘once-in-a-generation’ reforms would help bring in long-term investors.
In case anyone has forgotten, ownership at badly run South East Water is shared among an Aussie utilities investor, a Canadian pension fund and the pensioners at Britain’s very own NatWest.
Long-term stewardship provides no guarantee of service for consumers or good governance.
At South East, it has been party time for chief executive David Hinton and his fellow directors, glorious returns for debt and equity investors and taps running dry for customers.
NatWest is embarrassed and cannot escape public opprobrium in the manner of overseas owners.
The pension-fund chief has agreed to meet critic, Mike Martin MP. The reality is that largely overseas, investment in Britain’s water utilities is a disaster.
The Government’s proposed reforms consist of abolishing Ofwat (not before time) and creating a streamlined regulatory regime combining all the water enforcers, as proposed by former Bank of England bigwig Jon Cunliffe.
That doesn’t address the critical issues of command and control. Companies in the listed sector, such as Severn Trent, United Utilities and Pennon, operate in the full blaze of public disclosure on all fronts, from debt to service levels. Misfiring management can be removed.
The Government waxes on about fixing the cost of living problem. How it proposes to do this when households face a 25 per cent-plus increase in water rates, much of which will flow out in the shape of debt repayments and dividends to long-term foreign investors, is a mystery.
Pyrrhic loss
US activist Boaz Weinstein has lost out again in his bid to reshape the leadership of Edinburgh Worldwide Investment Trust.
Private shareholders gave his slate of new directors the heave-ho. The 53.2 per cent vote against Weinstein’s Saba shows shareholder democracy working.
But Saba has done us all a favour. Weinstein has lit a fire under the complacent, elitist and opaque practices that dominate the investment-trust world and Edinburgh’s Baillie Gifford in particular. Not before time.
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