U.K. Borrowing Costs Rise as BoE Halts QE

“The U.K. government bond market is undermining Prime Minister David Cameron’s own test of economic credibility, with yields climbing relative to global peers ever since the Bank of England halted its debt-purchase program.

Gilts have lost 2.3 percent since the central bank said it would stop buying them in November. Only Sweden gave a worse return among 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies. At 2.06 percent, the 10-year yield is close to a nine-month high, and up from the record-low 1.407 percent set on July 23. The average over the past decade is 3.96 percent.

Britain’s borrowing costs relative to global averages rose this month to the highest since October 2011, thwarting Cameron after he said on Jan. 6 that the “real test” of his economic policy is the interest rate investors demand to own U.K. debt. As the government cuts spending to reduce the deficit, the nation is on the brink of a triple-dip recession and the premier’sConservative Party trails the opposition Labour Party in opinion polls.

“Putting your credibility in the hands of the market is risky, if yields go higher then you’ve lost your main trump card,” saidAlan Clarke, an economist in London at Scotiabank Europe Plc, one of 21 financial institutions that trade directly with the U.K’s Debt Management Office. “The government is playing a dangerous game.”…”

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