For bond investors, every country is an emerging market now

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Government bonds have become unusually exciting. Dullness may not return for some time

Save time by listening to our audio articles as you multitaskA growing cohort of blue-chip economies are now being talked about in similar terms—and the comparison is not meant to flatter. Britain made a spectacular entry into this financial purgatory in late September by unveiling plans for huge, unfunded tax cuts, sending the value of sterling crashing. It is far from the only wealthy country where government bonds have become unusually exciting.

Monetary-policy surprises are not new to developed-market bond investors with long enough memories . Instead today’s suspense is over two novel forms of uncertainty: whether rich-world governments can afford the vast volume of debt they are issuing, and whether the market can absorb it. This habit of big government was formed during years in which rock-bottom interest rates kept funding costs low and rich-world creditors lenient. Now the interest bill is rising, exposing the spending plans of developed-market governments to the kind of scrutiny formerly reserved for their counterparts in the emerging world.

 

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