Gilts sell-off as Britain joins Italy in debt house

The cost of borrowing for the British Government has surged to within a whisker of Italian levels as global markets issue their punishing verdict on the Government’s spending plans.


By Ambrose Evans-Pritchard, International Business Editor
Published: 8:17PM GMT 23 Dec 2009
Comments 53

The yield on 10-year gilts spiked Wednesday to 3.97pc, 46 basis points higher than costs on French bonds. Britain and France were neck and neck as recently as last month, before Labour’s pre-Budget report raised deep concerns among Chinese, Arab, and Russian investors about the credibility of British state.

But what has caught market attention is the narrowing gap with Italian bonds, once mocked as the symbol of an ill-governed nation in thrall to the Dolce Vita.

Yields on 10-Italian treasuries have been hovering just above 4pc despite the eurozone’s Greek crisis, dropping as low as 3.98pc earlier this week.

Julian Callow, Europe economist at Barclays Capital, said Britain is nearing the eye of the storm as the Bank of England starts to unwind quantitative easing.

“The Bank has bought more gilts over the last nine months than the Government has issued. It has magically eradicated the cost of financing the deficits, but this is going twist dramatically the other way in early 2010. Markets know this. They are demanding a risk premium on sterling.â€