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There's been a massive transfer of wealth from bond holders to the British government as interest rates have increased. The British government is primarily fin
by spacebanana7 3y ago
There's been a massive transfer of wealth from bond holders to the British government as interest rates have increased.
The British government is primarily financed by very long term debt [1] which is the most sensitive to interest rates. As the market value of those bonds has collapsed, the government could repurchase them for a fraction of their notional value whilst banks, pension funds and overseas investors have taken a hit.
[1] https://www.ft.com/content/767d81c6-726c-4d34-8b24-d9685a60ab1b https://www.ft.com/content/767d81c6-726c-4d34-8b24-d9685a60a...
[1*] Key diagram: https://images.app.goo.gl/8oxQ8gw2fbbZWAZS7 https://images.app.goo.gl/8oxQ8gw2fbbZWAZS7
- itake 3y agoIsn’t there a wealth transfer to new bond holders? The government is paying interest to someone on those new bonds.
- spacebanana7 3y agoYeah, new bondholders profiting from the higher rates. However, those bondholders represent a minority of the debt. Roughly speaking, new borrowing is 4-5% of GDP whilst old debt is over 100% [1]. [1] https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/september2022 https://www.ons.gov.uk/economy/governmentpublicsectorandtaxe...
- dmoy 3y agoThe government can often repurchase its own bonds. The US Treasury started doing the same thing this month