Bonds take beating as UK is lumped with troubled trio
By Sam Fleming for MailOnline
British government bonds took a fresh hit amid claims that the Treasury's fractured finances bear uncomfortable similarities to those of Greece, Portugal and Spain.
The implied interest rate on the UK's 10-year gilt jumped to 3.95 per cent after former International Monetary Fund chief economist Simon Johnson warned Britain could face 'big trouble' if it fails to rein in public borrowing.
He lumped it in a list of shame occupied by a clutch of crisis-struck Southern European countries.
The gap between the UK Treasury's cost of borrowing and that of the German government leaped to 0.8 per cent point, equal to recent record highs.
German bonds, or bunds, are widely used by traders as a benchmark of fiscal probity.
Greece, Spain, Italy, Ireland and Portugal also saw another widening in their 'spreads' over German bunds, reflecting market worries about these countries' ability to tackle their fiscal woes.
Investors have made a near-5billion bet against the euro amid fears of a full-blown regional debt crisis.
That is a record short position against the single currency, according to figures from the Chicago Mercantile Exchange.
Tips & guides: Investing in bonds and gilts (thisismoney.co.uk)
'The financial markets are taking a long hard look at the fiscal accounts of all these countries and they don't like what they see,' said Johnson in a BBC interview.
'And I have to add the UK to this list. Unless you can persuade the markets that you're really going to bring the budget under control within the foreseeable future - you're going to have big trouble.'
Traders have targeted Greece as Europe's worst fiscal basket case in recent weeks, triggering predictions that the eurozone will bail the country out in order to shore up the integrity of the single currency area.
However, given the scale of the debts amassed by governments across the world during the banking crisis, no country is immune to market jitters.
Britain is emerging as a particular concern because of worries an unconvincing win by the Tories in the next election could lead to a minority government and political paralysis.
Economist Paul Mortimer-Lee of BNP Paribas said: 'The Greek thing spreading to Portugal and Spain has made people more nervous about sovereign spreads anywhere.
'The UK, with the possibility of a hung Parliament, is clearly one to worry about.'
If politicians fail to act decisively after the election, widely expected on May 6, a downgrade to Britain's AAA credit rating is a near-certainty, Mortimer-Lee added.