Will bond markets ‘have to fall into line’ with Andy Burnham?

Reality Check verdict: false

You know things are hotting up in Westminster when reporters start unironically using the word ‘febrile’. Today, we’re well past febrile. So much so that Westminster turmoil seems to be spilling out into the markets, sending gilt yields (the government borrowing cost) skywards.

For one Labour MP though that’s no problem. Speaking on Times Radio yesterday, Paula Baker claimed ‘the markets will have to fall into line’ and that investors would flood to Britain for ‘progressive policies that do speak to our communities’. Reality Check asked one investor for their views of the MPs comments and the response was unprintable.

In lieu of that quote it’s worth pointing out three reasons why Baker is so painfully wrong:

1. Unlike countries more indebted than us like, say, Japan, an increasing volume of our gilts are held by foreign investors and hedge funds. While institutions and pension funds tend to hold onto bonds for a long time, these new types of gilt holders spook easy, and so when markets move, THEY MOVE.
2. As the graph at the top of this blog shows, we're already an outlier. Whilst other countries similarly exposed to the effects of the closure of the Strait of Hormuz have seen their bond yields go in the wrong direction in recent days too, we already had a baked-in ‘moron premium’ thanks to our unsustainable demographics, spending plans and priced-in inflationary pressures (insanely expensive energy costs).
3. We’ve issued a higher proportion of inflation linked gilts – so called ‘linkers’ – than any other country. Clever when inflation is low and money is cheap – ouchy when prices start skyrocketing.

No one likes being ‘in-hock’ to markets of course, but if you’re going to endlessly borrow, you can hardly expect anything else. And the costs are racking up. According to the Office for Budget Responsibility, a sustained 1 percentage point increase in yields would cost us £1 billion. If yields stay higher for longer, the cost to all of us soars. This means more and more has to be spent on debt interest (already around £110 billion per year) and less and less on the things a soft-left Labour government would presumably actually like to be spending our pounds on.