Iran war is the bigger story, but the bond market is primed to deliver a kick if any extreme positions arise from a formal race
I
t is a mistake to think every twitch in the price of UK government debt is caused by the latest instalment in the great Labour leadership meltdown. Waiting for Wes is not the only drama in town for your average bond vigilante. Resolution, or not, to the Iran conflict is still the bigger story.
Those vigilantes will not be ignoring events in Westminster, obviously. It’s just that there is not yet much to chew on in terms of what it means for fixed-income investors’ daily diet of expectations for inflation, interest rates, growth, borrowing and so on.
What, for example, would an Andy Burnham fiscal rule look like? On one hand, the mayor of Great Manchester has said we need a “strong” one, which seemed to be an attempt to row back on his earlier rash remarks about not wanting to be “in hock” to the bond market. On the other hand, he’s said defence spending could be boosted “outside of the rules”. In the eyes of the market, it’s all spending and the proposed increase would be the critical bit, not the verbal gymnastics beforehand. Until the action gets going (if it does) and addresses specifics, it’s hard to draw firm conclusions.
