A UK financed overnight?

Sir John Authers in “The Short View” March 6 writes about the Bank of England’s plan to buy long dated gilts…which will make money cheaper by reducing the rates on long bonds. That might be what happens with the marginal rate but not necessarily what happens with the average rate.

In fact what is being done is reducing the current interest rate cost of the public debt of the UK by reducing its average maturity and which could prove to be very costly tomorrow, like many Americans who entered into adjustable rate mortgages could attest.

It is indeed the Bank of England taking the short view. Let us see what happens when markets wake up and finds England financed overnight.

A debt’s maturity profile might be much more important than its amount.

Sir I do know how to interpret a Britney Spear “oops” but I hope it does not carry the same meaning for Martin Wolf “The eurozone depends on a strong American recovery” December 10. If indeed Wolf is now surprised by the existence of European sovereign credit risks then he has clearly been writing much too close to the trees and needs urgently to step back so as to get a better look at the forests.

Having said that what I really wanted to comment on is when Wolf writes “It is possible to imagine a ´sudden stop´ on higher risk sovereigns bonds. That would force the debt to become short-term – a classic route to a crisis” and this is clearly another very real risk. In this respect, an insistence by the US Treasury to try to collect on the benefits that a drop in long term rates could have reviving the housing market, by buying back longer term bonds and as a consequence shortening the maturity profile of the US public debt, is exposing the US, and us, to some very dangerous risks.