Britain has become the global leader in the financial repression of government creditors, according to Enzo Puntillo, the head of fixed income at Swiss & Global.
Puntillo says high inflation has contributed to British 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 Britain is the front runner when it comes to suppressing inflation-adjusted returns on its debt. (article continues below)
Two-year gilts offer a negative return of approximately 4.2%, after inflation.
America offers the second worst returns, with 2.75%.
Britain’s consumer prices index (CPI) inflation rate was revealed to be 5.2% in September – well above the Bank of England’s 2% target. However, other countries have delivered a real return, despite rapid inflation. Brazilian inflation hit 7.3% in October – the highest level for six years – but still offers one of the best returns on its two-year paper, with a real yield of over 5%.
Alan Wilde, the head of fixed income and currency at Baring Asset Management, warned of “deeply negative” real returns to gilt investors on 10-year bonds in August, arguing that they are a consequence of low prospects for British economic growth.