The recent upheaval in the º£½ÇÊÓƵ's bond market is a clear indication that the "dragons of market discipline are alive and well," according to a statement made today by Carolyn Wilkins, an external member of the Bank of England's financial policy committee (FPC).
Speaking at Fitch Ratings, she acknowledged the recent instability in the gilt market, as reported by .
"Recently we’ve seen orderly movements in global yields as one would expect given news that markets consider relevant to the global outlook."
She further noted, "There have been spikes in yields in a number of individual countries in recent years, including the º£½ÇÊÓƵ, that indicate the dragons of market discipline are alive and well," The º£½ÇÊÓƵ government bonds experienced a significant sell-off, largely driven by the anticipation that US interest rates would remain high for a longer period due to persistent inflation. The yield on the 10-year gilt reached 4.93 per cent, its highest level since the financial crisis.
Gilt yields are closely linked to movements in the US Treasury market. Although yields have almost entirely recovered following soft economic data, the FPC remains concerned about the high levels of public debt, both in the º£½ÇÊÓƵ and globally.
"The FPC that I sit on is of the view that global sovereign debt risks are material," Wilkins stated, adding that global public debt is likely to approach 100 per cent of GDP by the end of the decade.
Concerns are intensifying among market participants about the sustainability of public debt externally, which could affect the internal cost of debt servicing for the º£½ÇÊÓƵ government, as well as for households and businesses, an expert emphasized. In recent times, a slew of commentators have sounded the alarm on the rising debt in advanced economies.
Significantly, the Congressional Budget Office in the United States highlighted an alarming trend on Friday, stating that US government debt is likely to exceed its post-World War II record, a projection that's yet to account for the impact of the tax cuts introduced by Donald Trump. "The fiscal situation is daunting, the debt trajectory is unsustainable," remarked Phillip Swagel, director of the CBO, after the office published its report.
In Britain, the Office for Budget Responsibility (OBR) has offered a grim forecast, predicting that national debt will swell to 270 percent of GDP in the course of the next half-century. Meanwhile, Ray Dalio, the founder of Bridgewater Capital, issued a starker warning for the º£½ÇÊÓƵ, cautioning that the nation stands on the brink of a "debt death spiral" due to increasing costs associated with servicing its growing debt.
