PIMCO Fears UK ‘Debt Trap’

2 Apr

From the UK’s Telegraph:

The US bond fund PIMCO has warned that Britain risks a vicious circle of rising debt costs as global investors demand a penalty fee on gilts to protect against inflation.

Bill Gross, the fund’s chief and emminence grise of bond vigilantes, said the UK was on its list of “must avoid” countries along with Greece and others in eurozone’s Club Med.

The flood of British debt is likely to “lead to inflationary conditions and a depreciating currency”, lowering the return on bonds. “If that view becomes consensus, then at some point the UK may fail to attain escape velocity from its debt trap,” he wrote in his April monthly note.

Mr Gross said the UK is not yet in crisis but gilts are sitting on a “bed of nitroglycerine” and must be handled delicately.

Michael Saunders from Citigroup said the UK has “no credible medium-term path back to fiscal sustainability”.

UPDATE:

From Reuters –

PIMCO Sees UK Downgrade

PIMCO sees Europe’s action on Greece as ineffective in fixing the country’s problems, while Britain’s sovereign debt rating could be downgraded within a year, a top executive of the world’s largest bond fund said.

Scott Mather, head of global portfolio management at Pacific Investment Management Co (PIMCO), told a briefing in Taipei on Thursday that the company was underweighting UK, U.S. and pan-European 10-year sovereign bonds.

Miracles are needed in the next six months in order to keep economic growth in the developed world,” Mather said.

Last month, PIMCO said it was maintaining its negative stance on British gilts because the amount of debt the country would have to issue in the future should lead to inflation and a depreciating currency.

The country’s record-high debt has caused disquiet among investors, and Standard & Poor’s has put the country’s top-notch triple-A rating on a negative watch.

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4 Responses to “PIMCO Fears UK ‘Debt Trap’”

  1. Barry April 4, 2010 at 10:09 pm #

    Interesting that PIMCO sees Australia as one of the most solvent nations in the wold.

    http://www.businessspectator.com.au/bs.nsf/Article/Bill-Gross-PIMCO-debt-financial-crisis-pd20100127-247

  2. Barry April 5, 2010 at 8:19 am #

    No comment on Barnaby’s removal from finance minister?????

  3. The Blissful Ignoramus April 5, 2010 at 9:37 am #

    A demonstration of the intrinsic dishonesty of politics. Telling people what they do not want to hear … is never popular.

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