The UK has become the global leader in the financial repression of government debt yields, according to Swiss & Global’s Enzo Puntillo.
Puntillo, head of fixed income at Swiss & Global, says a combination of above-target inflation and historically low gilt yields has led to UK government debt offering among the worst real yields in the world.
An analysis of real returns on two-year government bonds by Swiss & Global reveals that the UK is the front runner when it comes to this system of financial repression.
Two-year gilts offer a negative return of approximately 4.2 per cent, after inflation. The US offers the second worst returns on a comparative paper with a negative real return of 2.75 per cent.
The UK’s consumer prices index (CPI) inflation rate was revealed to be 5.2 per cent in September – well above the Bank of England’s 2 per cent target.
Although Brazilian inflation reached its highest level for six years in October, rising to 7.3 per cent, the analysis shows that it is still offering one of the best returns on its two-year papers with a real yield of over 5 per cent.
Neal Underwood warned of “deeply negative” real returns to gilt investors on ten-year papers in August, arguing that this is a consequence of low-growth prospects for the UK.