A conspiracy, and even a coup, might be happening, as the FT suggests it is. But what is weird – and new – which makes this politically economically interesting, and vital to note, is that the conspiracy is happening in the open, and so banks, traders, hedge funds, and others can all take part if they wish under the guise of risk management when that supposed risk is being created by the conspiracy against Labour of which, I have no doubt, some in the City approve, as I have suggested.
It’s not crazy to note this.
It is not a conspiracy, you plank, it is a revolt.
It is the financial services equivalent of pitchforks and burning faggots.
Poor Capt. Potato is being lampooned on Guido for saying what everybody should know, namely that Elon is responsible for “destabilising” the gilts market.
Does the CPGB give out grants for blogging?
“… the conspiracy is happening in the open …”
Dictionary definition: “a secret plan by a group to do something unlawful or harmful”.
BTW can whoever is running the “conspiracy against Labour ” get in touch? I have some ideas for the next meeting.
Radio 2 wouldn’t put David Icke on the air. So it should be ashamed of itself letting Spud on.
I have to ask, what sort of country, world, do we live in when such a clear sign of narcissism and delusional illness is accepted as a serious contribution to national debate?
One of his commenters, one that was allowed on that is, asked him to describe the specific mechanics of this conspiracy. He waffled on about them ‘shorting’ the bond. When asked for “no, the specific mechanism for shorting” he hurled abuse and blocked the guy.
And he’s got a whole of similarly certifiable weirdoes telling him how very right he is.
He’s apparently decided to go down the ‘Infowars’ route and switch to a stream of consciousness:
As I write this, the UK government appears to be under continuing pressure because institutions in the City of London are selling their bonds, forcing interest rates higher.
There’s enormous regulatory scrutiny on Bonds Trading, especially in the area of Sovereign. Not saying it’s completely outside the bounds of possibility but the more likely explanation is people are looking at the announcements from such ‘Far right’ sources as the IFS that the government will have to reduce spending or increase borrowing and acting accordingly. This is the worst government the UK has ever seen – I’d be selling its bonds off if I had any!
There is only one logical reason for this selloff, which is the impending chaos that might be created by Trump‘s economic policies. No doubt, this has driven similar increases in interest rates in the USA. The UK is not alone in suffering this problem. The UK will not be alone in facing it to a much greater extent if Trump really does release the mayhem that he has promised. What will happen then? It is utterly unpredictable.
He’s an authority on the Bonds Markets as well now – is there no limit to his knowledge? I might run this take past our Bonds research team and see what they think.
There is, however, a peculiarly UK dimension to this current sell-off, which might be worth mentioning. A few days ago, Elon Musk put a poll on Twitter asking whether steps should be taken to bring down what he called the tyrannical government of the UK. He was, of course, referring to Labour.
Perhaps it wasn’t wise to send people over to interfere in the US presidential election?? Actions can have consequences or don’t you consider that?
What we also know is that Elon Musk is bound to be popular with the boy traders who populate the City of London. They, like him, will think that money is the be-all and end-all of human existence.
Given the amount of money you try and extract from the government and your desire to confiscate all private savings to fund your pet schemes it seems you and Musk have more in common than perhaps you think. The difference being he provides services people want to consume. You have a reputation for evil that matches many people wanted by the ICC.
They will, no doubt, share many, if not all, of his far-right and deeply prejudiced views.
Opposing gangs of child molesters is ‘Far right’ and ‘deeply prejudiced’, now?
Like him, many of them will loathe the Labour government, partly because it exists, and partly because it taxes, but most of all because they think it is socialist, which only reveals how little they understand the term.
It’s certainly Left wing on any reasoned definition of the term. It’s Socialist bona fides are disputed by those commentators like yourself who exist on a parallel political spectrum where anyone opposed to your hair brained logic is ‘Far Right’. I would hope many more loathe this government given its appalling record in only six months.
And, like most of the followers of people like Musk, Andrew Tate, and their like, these City boys will be mindless in their adherence to the instructions given to them by their heroes. As a result, it is entirely plausible that if Musk wants Labour brought down, these City of London-based people will see it as their job to do just that. Given that the funds provided to them by their banks to trade with them provide them with immense trading power, the possibility that they are using that power to discredit Labour and so, they hope, bring it down cannot be excluded.
Yes it can – comfortably
On January 6 2021, Trump staged a coup in the USA.
No – he did not
Four years later, is a coup against the UK government being mounted from the City of London? In a world where nothing is too absurd to happen now, I think it entirely plausible that what is happening is deliberate, coordinated, and intended to create political difficulty for Labour that can be exploited by the far-right.
It’s nothing of the sort and frankly I’m pissed off. Pissed off at the Thatcher government because it closed the asylums.
Who would now be brave enough to suggest otherwise?
Anyone with a functional IQ above 10
Ironman
Good point and worth putting some of the comments down here lest his ‘Blue Pen’ kicks in:
BB says:
January 9 2025 at 10:51 am
You could call it a couple, or if you weren’t living in some fantasy world you could call it a perfectly rational reaction to Labours policies. People dont
They’ve increased taxes dramatically which has crushed growth, but most of the money is going to civil servants wages and other areas which haven’t had any productivity growth for ages. Which means most of the spending won’t see a commensurate improvement in services or growth.
They’ve increased taxation dramatically on forms or wealth that drive investment. Pensions, inheritance, capital gains, non Dom’s. Unsurprisingly people are voting in their feet. The UK is basically uninvestable now. Let alone the forthcoming changes to employment laws.
Not only have they managed to do all that, they sparked an increase in inflation thanks to front loading their new spending and pushing increased costs on to businesses.
We could also talk about a hugely expensive and totally unrealistic energy policy driving the most expensive energy prices in the world.
The budget has killed growth stone dead but baked in much higher public spending for decades. Yet no reforms to actually make the public spending likely to achieve anything.
So if you think that investors are going to buy Gilts in the face of this, knowing that growth is falling, inflation rising and budget deficits are going to rise, you must basically be crazy.
But the you seem to think that printing money would solve the issue, with no adverse effect on sterling, inflation or gilt yields. So we can pretty much answer that can’t we.
Richard Murphy says:
January 9 2025 at 1:05 pm
You clearly have no clue what you are talking about.
Bonds are bought because the UK government is always able to pay, has always paid, and will always pay, and a fair rate of return is paid, which even with low growth is possible.
So, very politely, stop talkking nonsense. People – real people – want securoty and gilts provide it better than anything else.
And if you want growth in a situation where the private sector is clueless as to how to deliver it, of course you need a growing public secrtor because that is the only area where there is demand now.
I wouldn’t beother replying if I was you
Simon Steele says:
January 9 2025 at 1:48 pm
The risks in the Uk, particularly inflation due to the policy actions of the government, mean that investors require higher bond yields to compensate themselves for the risk.
The fact that the Uk guarantee will not default on the debt is somewhat meaningless if your £100 redemption payment is worth peanuts due to inflation.
So the move in gilt yields is a natural function of sensible investors aligning their capital with the risks and returns available rather than your nonsense pretence about untoward actions of ‘city boys’.
Which you’d understand if you had the faintest idea about how city traders and fund managers operate. But you clearly don’t.
Richard Murphy says:
January 9 2025 at 2:01 pm
There is no risk
There is precisely zero chance a UK bond will not repay.
And inflation is near as dammit the same in all major economies.
Why do people like you talk such garbage?
All Murphy comments (sic) from the original
This one necessarily longer – Clive Parry usually pro Murphy but on this one schools him rather. I like Murphy’s insistence that evidence of the conspiracy is ‘overwhelmingly in his favour’:
CLIVE PARRY says:
January 9 2025 at 5:17 pm
Borrowing and lending of gilts is essential for the smooth running of the market and and lending gilts is a very sensible think for investors to do.
First, the borrowing/lending of gilts is simply the lending/borrowing of cash versus gilt collateral. The ability to deposit large amounts of cash taking gilts as collateral is important for the stability of the banking system. The vast majority of borrowing/lending of gilts (or General Collateral (GS)) is just simple money market activity. Everyone benefits from a good, safe money market.
Second, there is the borrowing and lending of specific gilts to allow short positions – the “Specials” market. This is essential to allow gilt market makers to operate. They have a duty to offer any bond to their clients, even if they don’t have it in their inventory; without the ability to borrow a particular issue then gilt market liquidity would be very severely impaired. Market makers (who need to borrow the gilts) pay investors (who lend gilts) for the privilege.
Now, I am guessing you are happy with this activity but not with “speculators”… but at a practical level it is hard to define what is “speculative”. Besides, I don’t really care – speculative selling might, in the short run, depress prices but speculators must sooner or later buy back their shorts – which would drive prices back up to where they started… or, indeed, higher. There are occasionally destabilising aspects to this speculative activity but in the gilt market these are easily contained by the BoE (if they wish to). At the moment, just ignoring things makes perfect sense; the moves are small and not disorderly or destabilising (completely different from the Truss debacle).
So, in summary, gilt lending enhances returns to investors, creates better market liquidity without any risk to orderly market functioning.
Now, in FX things are different. In gilts when there is a rush to short a particular gilt issue it will go “special” but this has absolutely no impact on the real economy and the Central Bank always has tools to keep the market under control. In FX, intense speculation can’t always be met with intervention (FX reserves are limited) and if met by higher interest rates, has an impact on the real economy. FX controls are the only tool here that can prevent speculation. Whilst out of fashion here in the UK they are alive and well in Singapore (yes, that country so beloved of neo-liberal market fetishists).
Richard Murphy says:
January 9 2025 at 8:10 pm
Clive
Thanks, as usual, but I might disagree with you on some of this.
I have no problem with lending with collateral if the collarteral offered is owned and not traded, even in the short term, by the person with a charge over it.
I do have a probloem with this:
“They have a duty to offer any bond to their clients, even if they don’t have it in their inventory; without the ability to borrow a particular issue then gilt market liquidity would be very severely impaired. Market makers (who need to borrow the gilts) pay investors (who lend gilts) for the privilege.”
Market makers should make markets by owning inventory. I also suggest, very storongly, that if they have not got that inventory they must be required to acquire it in very short order (days, at most). If not, there is no effective market pricing mechanism. Gilt borrowing does not help markets in that case, it hinders it.
And I don’t really buy the liquidity argument: market makers should make that, not gilt lending. If market makers cannot do this, they should lose their status.
I accept the point on FX.
But I think loans should be restricted for the reasons I note.
Richard
CLIVE PARRY says:
January 9 2025 at 7:43 pm
Looking at the usual metrics for judging auctions….
Auction was covered 3x – quite typical. Tail (difference between average accepted yield and lowest accepted yield) was 0.5 basis points – this is quite typical, too. So,nothing to see here.
Indeed, gilt yields were only a little higher on the day. This is NOT a gilt crisis.
Richard Murphy says:
January 9 2025 at 7:44 pm
Agreed
CLIVE PARRY says:
January 9 2025 at 8:31 pm
With respect to your comments about market making I am afraid that you your suggestions are completely wrong.
It would mean gilt market makers (GEMMs) carrying huge inventories in every bond and thus massive amounts of interest rate risk. Indeed, if they carried that much inventory they would have all gone bust in the recent rise in yields. GEMMs are typically are neutral with respect to interest rates and will have long and short positions in various different gilts. It is only the ability to finance long and short positions that allows the market to function.
I would go even further – most Bond trading firms will run a net short in long maturity gilts. Corporate bond books are almost always long inventory (mainly because the bonds are hard to borrow) so, to hedge the interest rate risk the Corporate bond trader will be short gilts. So, if the gilt trader is flat then the firm is net short.
Richard, it is the only way you can have a functioning liquid gilt market…. and besides, there is no real downside to having things this way.
Richard Murphy says:
January 9 2025 at 8:59 pm
OK, now tell me what 99% of gilt trades are for, Clive?
Sure, we need a secondary market for necessary realisations.
But what percentage of the market is that? And what is the purpose of the rest of the market?
I researched this issue in some depth a whole ago. When doing so it became very clear that the vast majority of holdings are incredibly stable and very long term. The rest were speculative. They were small, but traded a lot. But, what value do they add, except to the trader? If they don’t actually add value (and if the market makers can’t make money from them, as you suggest, who can?) why an I wrong? Why is this a market that needs to exist in the form it does? Wouldn’t Adair Turner’s comments about socially useless markets apply?
Serious questions
Richard
CLIVE PARRY says:
January 9 2025 at 9:43 pm
Serious answer. Most speculation is across short time frames, here is an example very typical of my time trading European Government bonds in Tokyo with Japanese customers.
I am flat. Japanese Life insurance company wants to but EUR 100 million of German Government bond X. My job is to keep the client is happy so I show a competitive offer and they buy. (If you keep going to Tesco to buy onions and they are either not in stock or absurdly expensive you soon stop going in and Tesco loses of other stuff – that is why I must always offer competitively).
At this point, I am short; to do nothing would be pure speculation – that is important to note. However, there is no offer on the Interdealer broker screen for this bond. What do I do? Well, I could (and would) call round any end clients to see if they want to sell but that is fairly unlikely and it would not happen that quickly and I would be at risk.
There might be a cheap offer on the IDB screen in 20mm in bond Y (similar to X) – if so, I will buy that. Next, I will probably buy some US Treasury bonds – 40mm (as experience tells be that German government bonds will move about half the move in US bonds).
When the German Government bond futures market opens in London, I will buy German futures 40mm, sell UST futures 40mm. I will then do a “basis trade” where I sell Bond Y, buy futures in a linked transaction. Finally, I will do another basis trade where I sell 100mm futures and buy 50mm bond X.
And finally, I am flat. Add up all this and I have traded USD 80mm and EUR 440mm.
So, Client activity 100mm, my activity 500mm. Is that 400mm of activity speculative? No, on the contrary, it is hedging and minimising risk.
Now, the fact that the Japanese Life Cos. are buying is good information that would not be available to all traders so I might scoop up 50mm futures for my book on the basis that there will be other buyers about. This is speculative, I hope it will be profitable and allow me to service the next client that wants to buy at a competitive price.
So, 100mm client trades, 500mm hedging trades with a 50mm speculative trade. So we could perhaps say that 10% client trades, 80% hedging and 10% speculative is the mix of a typical market maker.
Why do it? If I was only prepared to offer bonds that I owned (or could buy off the Interdealer broker screen) then the client would have had to pay a higher price. Frankly, I probably won’t make much, if anything, on that trade but information is valuable and I would hope to profit from it.
A long piece but this is (well, was) the life of a Government bond trader; technology has changed a lot but the principles are the same.
Richard Murphy says:
January 9 2025 at 10:12 pm
And literally, no hint of a benefit to society but a lot of value no doubt extracted from the trade at end cost to the real saver in the fund who is blind-sided to all this, but who bears that cost of all this wasted activity. Adair Turner was right. The uselessness of the City has rarely been made more clear.
CLIVE PARRY says:
January 9 2025 at 10:29 pm
No, the benefit to society is that the client (and their end savers) has achieved a better price than they could have got without my ability to hedge with all the resulting transactions.
Now, there may be better ways to do this – I have suggested on this blog a return to the “old days” of the German Government bond market where the price of bonds was fixed once a day and all buyers/sellers dealt at that price. But even this requires some speculators to take the other side if there is a mismatch of buyers/seller.
But the point of the of the last reply was to point out that the vast bulk of non-client activity is not speculative but hedging. Who is hurt by this risk reduction? And, how would you create a market that allows end users to transact without any speculators?
Richard Murphy says:
January 10 2025 at 6:45 am
You give a hint of understanding the issue I am raising now. Other possibilities are available.
For example, the Debt Management Office could act as broker to save all this useless activity. It does hold bonds in reserve at all times. Problem solved, in its entirety.
What you don’t get is the irrationality and superfluity of something you spent your life doing. In effect there is a fraud (not criminal, but a form of deception, nonetheless) going on here. The trader represents to have a product for sale they do not have. And they sell it although they do not have it. Only then do they undertake a furious scramble to find it.
I can imagine accepting an order for something you do not have, and saying you’ll deliver when available. But the trader actually represents to gave things available now that are not in their possession, as you admit. And they sell despite that.
Is that really an honest market? Is that really creating liquidity? Is that really pricing properly? Is that really beneficial? I can ask all those questions and presume not. I can also say the activity is socially useless. I think it is.
I am aware I am told by many here I have no idea what I am taking about. I disagree. I am suggesting we have dysfunctional, risk laden, markets that can be used to operate against the public interest. Of course those working in them defend them. We all know a person cannot see the truth when paid not to do so. But that does not mean they are right. Nor does it mean I cannot question their version of events. That’s how change happens, and bond markets are by the admission of those trading not socially worthwhile – they trade in assets the readers coming here say people should not own. They think their activity not worthwhile. I am questioning why we do it in the way we do in that case.
CLIVE PARRY says:
January 10 2025 at 8:05 am
This thread has come a long way from the original “is there a conspiracy?” (No, in my view) to being about how we want the gilt market to operate – the role of investors/market makers/DMO/BoE/speculators etc.
The current set up is far from perfect but I think discussions about how to improve them are best continued under another blog post….
Richard Murphy says:
January 10 2025 at 8:37 am
That will happen, Clive.
We’d will have to disagree on the conspiracy.
On that the evidence is overwhelmingly in my favour.
Again thanks to VP for providing the extra material and incurring the psychic cost of reading all the drivel.
“There is only one logical reason for this selloff,”
https://en.wikipedia.org/wiki/Fallacy_of_the_single_cause
“They, like him, will think that money is the be-all and end-all of human existence”
And the King of the Potato People famously doesn’t care about money. Except if other people have it and he doesn’t. Or if they just have it.
“Like him, many of them will loathe the Labour government, partly because it exists”
Based!
“And, like most of the followers of people like Musk, Andrew Tate, and their like”
Look, it’s the bogeymen! Boo!
“As a result, it is entirely plausible that if Musk wants Labour brought down, these City of London-based people will see it as their job to do just that.”
Champagne is on ice. Any time now lads. Today would be good.
“They are using that power to discredit Labour”
Unlike the MP scum who voted against the child abuse inquiry the other day, who are making Labour look great.
@Van_Patten
Murphy’s position makes more sense if he’s never realized that more risky bonds pay a better rate of interest than risk free Government Bonds or that bond yields change over time.
That exchange simply makes me wonder how an experienced bond trader, who apparently knows how the market works, can be a Spud fanboy. Wonders never cease.
AndyF
I once summarized Murphy’s position on any issue – whatsoever, of any complexity as being akin to a Caveman discovering a laptop – he knows its a complex thing so he has to reduce it to terms he can relate to. As his sphere of knowledge is so limited and his temper so short you get a lot of angry , intemperate near rantings of ‘why it ain’t so’
I’d be absolutely amazed if he had any understanding of how bond yields work certainly. I would also note that from his perspective the only bonds available to private investors should be Green bonds funding him and his pet ‘Green projects’ at a yield of 1% or less.
His position on Markets is that all private activity, including trading is economically worthless unless directed for the benefit of the state. It’s identical to the North Korean vision.
He is an exemplar of evil in its very purest form, even before the fact that he considers child molestation a ‘minor crime’ and its exposure ‘far right’.
I don’t suppose he was bothered about the WEF coup on The Lettuce when she attempted to make the UK more competitive by (gasp!) cutting taxes.
We’re always being warned that for financial products past performance is no guarantee of future returns and to take care when investing. Gilts may be low risk but they aren’t zero.
If I took his advice there and the gilts I invested did go tits up and I lost a lot of money could I sue him?
Martin M25 « …the psychic cost of reading all the drivel »
Rather like a ghost writer but the other way round sort of thing?
I was sort of thinking of the Lovecraft mythos where weird creatures inflict damage to the sanity of those who come into contact with them.
Bonds are bought because the UK government is always able to pay, has always paid, and will always pay,
I would give you War Loan 1952 or after. People bought them because they believed the government would redeem at par. The “after” turned out to be considerably after what they’d been lead to believe. Meanwhile ordinary people saw their patriotic savings worth…? In the 20s in the 70s, weren’t they? They were redeemed when the yield went over coupon.
That exchange simply makes me wonder how an experienced bond trader, who apparently knows how the market works, can be a Spud fanboy.
Because it suits his book? Never neglect the obvious.
Brilliant by VP. And medal to that man Clive Parry who must have the patience of a baby sitter.
BiS; 1932 3.5% Shirley? Perpetual, just shy of 2 billion?
That may have been the 5% issue from the 14/18. The coupon was voluntarily reduced to 3½%. I saw enough 3½ bond certificates to remember the redemption date. My very first job in the City was doing the mechanics of a unit trust offer, exchanging units for War Loan. Sometimes the certs would come in with attached letters. Indicating how happy the holders felt about their savings they lent government in patriotic good faith having lost 90% of their value. And a lot of them were quite small amounts of money. (But no doubt a lot of money in interwar Britain) But at least they were now able to get rid of them without losing a considerable amount in transaction costs.
https://hansard.parliament.uk/commons/1960-12-07/debates/446d2680-f433-41c0-942f-570c7f829cd8/3%C2%BDPerCentWarLoan
I note from the above, the Sage of Ely’s still pursuing his bête noire, speculation.
Speaking as a speculator. Or at least as someone who does spread betting on currency rates (modestly successfully). I am not part of any conspiracy to undermine the Labour government. In fact I don’t even have a view on the £/$/€ rates. Most particularly, I try not to have a view on the £/$/€ rates. I’m not interested in the cents. I’m interested in points. Having any long term view would conflict with & might influence what I’m doing now. Like most speculators, the only opinions I have are about other people’s opinions. Not what they are but whether they’re getting them wrong. Whether the Labour government succeeds or fails, it’s all the same to me. IDNGAF. Money can be made either way.
“I am not part of any conspiracy to undermine the Labour government.”
You would say that, wouldn’t you?
Ducky +1
“I am not part of any conspiracy to undermine the Labour government”
In the style of Murphy…..
Someone who was part of a conspiracy to undermine the government would deny it.
So you prove my point.
Why do you want old people to starve to death?
Answer me that.
Don’t call again.
@ bis
For some value of “Voluntarily”
Ducky… to be fair…. The UK government is doing a stellar job of undermining itself.
There’s hardly anything you can actually add to it that doesn’t fall under the Law of Diminishing Returns.
And BiS doesn’t strike me as someone who would expend a lot of effort in a race that’s effectively run already.
“The UK government is doing a stellar job of undermining itself.”
Nooo, no, no.
It’s sabotage all the way down.
“I am not part of any conspiracy to undermine the Labour government”
I tend to agree with him, we know nobody works with him for long and it takes 2 or more to make a conspiracy. As his reputation precedes him so there’s even less likely he’ll find someone to work with.
BiND @ 5.48, you don’t have to work or even to know each other to be part of a conspiracy. See Climategate
And BiS doesn’t strike me as someone who would expend a lot of effort in a race that’s effectively run already.
Indeed. I’ve just been sitting back enjoying the UK’s refound ability to produce stunning comedy programmes. My sides are truly aching.
Or is it your current affairs shows I’ve been watching?
Addolff,
I get your point but that’s not the dictionary definition.