Tuesday, 13 August 2013

This is not the end, this is not even the beginning of the end...

... but, perhaps, it is the end of the beginning.

The price of interest rate futures is basically the inverse of interest rates; if interest rates go up, futures prices go down and vice versa. Which is why this chart, downloaded five minutes ago cheered me up no end.

What exactly happened to the UK economy in May and June? After such a dramatic fall, prices/interest rates superficially stabilised during July, but now appear to have recommenced their downward lurch. Is the economy really picking up, or are people starting to worry about longer term inflation, or are they starting to worry about the solvency of the UK government?

Click chart to get updated version from www.barchart.com:


paulc156 said...

We'll see soon enough but if an economy starts to expand as the UK's has you would expect to see higher medium and long term rates. Investors are basically saying that they see short term rates going higher even if not for a while yet, once unemployment gets to the governor's target. Solvency's a red herring outside of the Eurozone. You can take a ten year gilt to the bank...so to speak.

Mark Wadsworth said...

PC, of course solvency is not really an issue, but there are people who believe it is so I thought it polite to say it. The only worry is inflation.