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| Bond scare as German auction fails and British debt hits danger level |
| 2009-01-08 |
| Fitch Ratings has warned that Britain's public debt will explode to almost 70pc of GDP by the end of next year, vaulting past Germany to become one of the most heavily-indebted states in the industrial world. There are fears that the next crisis in the global financial system could prove to be a rebellion by the bond vigilantes, already worried by talk of a bond bubble. This would push up rates used to fixed mortgages and corporate bond deals. Central banks can offset this for a while by purchasing bonds directly -- "printing money" -- but not indefinitely. The US alone is expected to issue $2 trillion (£1.3 trillion) of debt this year, and the Europeans are not far behind. Italy alone must tap the markets for €200bn as it rolls over its huge stock of public debt and meets the cost or recession. Fitch Ratings said Ireland, Greece, the Netherlands, and France face a heavy calendar of auctions as maturities fall due. Robert Stheeman, the DMO's chief, says Britain may be nearing the limits of investor tolerance. "I'm not predicting that we will have a failed auction, but I can't rule that out. It's a big amount of debt to be sold. We are in a different world from a year ago," he told Bloomberg News. As long as Britain keeps its coveted `AAA' rating it should be able to the tap the bond markets at a reasonable price, but this rating is no longer entirely secure. Fitch says the UK will have jumped from 44pc of GDP in 2007 to 68pc by late 2010, a staggering rise for major country. It usually takes a war to do such damage. |
| Posted by:Anonymoose |