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Welcome to the Marrin Talks Money Market Wrap, where we talk about the biggest moves in the markets this week and what is driving them, or more what we think might be driving them.

I'm Maren Sumset, Web Editor at Large for Bloomberg UK Wealth.

Now.

My usual co host John Steppeck is on holidays of frolicking on a beach somewhere, possibly Greece, I think.

Anyway, fear not.

Our trusted fill in, Bloomberg Opinion columnist Marcus Ashworth is with us today.

Marcus, thank you so much for joining us.

My pleasure is Ella.

I think you filled in for me a few times on my lengthy holiday in August.

Not frolicking on a beach and definitely not in grease, but nonetheless away.

We talked about you a lot, did you.

No.

No, I was about to say welcome back and listen to those, but I guess maybe I won't after all.

Anyway, quite an interesting summer and so much to talk about now this summer is over.

I think we're going to have to start with the bond market, because it's not often it makes it onto the front page of most of the papers, but this week it has actually done that, although things seem to have calmed a little bit now, So Marc, it's just in a couple of short sentences what's going on.

It definitely is gil market has dominated, as you say, and it hasn't been quite exciting suburb compared to most So it's not actually a UK specific reason this time.

That the sell off all year is being driven by domestic factors politics, inflation and a number of other different worries about upcoming budget which he now knows November twenty sixth.

But really what's been happening in the last week or two is just a continuation of a much broader global very long end bond selloff driven by a number of factors.

Firstly, as we know in the year was probably the UK lad because we have a much increasing changing in our pension system, which means that pension funds defined benefit schemes do not wish to have as much exposure duration long end bond exposure, something similar to happening in Holland.

At the same time, we've got a big sell off in the second largest bond marketing world in Japan, and just the last week or so we've also got a political troubles, not just in the UK for once, but in France with a potential vote on September the eighth, which may see and yet another French government.

So all these things are conspiring with a bit of a sell off in US treasury bond years, which the guilt market takes very close measure to.

But this week we've had some good news in some senses from the Debt Management Office quarterly guilt auctions, schedules and remits and syndications, and we have very successful ten year auction one hundred and forty billion pounds worth of overblown supply.

But nonetheless they sold fourteen billion before.

If we've got a girl, all great news, so we shows the demands there.

This is not a UK problem in the sense of liquidity.

It may well be one instolvency will come onto the budget a second, but they are going to be selling a lot less, a lot less, fewer more, indeed long end guilt and particularly index linked inflation bonds, so you know they are the government is at least trying to get out their own weight.

But nonetheless we still had very high yields.

It's very worrying and everyone's got a little bit over excited.

Yeah, let's go back a little too, whether there's UK exceptionalism in here or not.

So obviously, you know, our yells have moved up substantially, But the other thing to look at is whether they've moved up relative to other countries yields, and that seems to suggest there is more wrong in the UK than elsewhere.

Right, So, since over the last couple of years we've seen the ten year guilt, he'll move from sort of knocking around the middle of everyone else in the G seven to being actually one of the highest prosibly the highest in the G seven, which suggests that people are looking at UK guilt and going nah, not so much.

Yeah, I mean, I think that we have two problems here.

We have higher inflation than cerly in Europe does, and aly double because this government continues to do self harming things like raising the minimum wage, raising civil servants pay, taxing obviously, employer national insurance, and a rath of other stuff, which has made the Bank of England's already difficult job even harder.

The Bank of England, of course, is also making everyone's life harder by selling lots of its own bond holdings constitative tightening in the active sense, no one else does.

But then we have a fundamental solvency issue here whereby no one believes this government's economic policy is going to work.

They've not been able to get any form of welfare cuts or cuts of any form of government spending, and fundamentally everyone's worried about more tax hikes.

More bond issuance has been the only way out of this whole.

So unless this government can somehow get its way round to actually doing something about controlling the runaway government spending bill, then I suspect that is why, as you said, the UK accepts and with a much more sticky inflation backdrop, is why our yields a higher than everyone else's.

Yeah, and now we've got this long wait for the autumn budget end of November, now where we look at this and we think, well, what will she do?

And that everyone assumes that this government is incapable, as you say, of cutting spending and incapable of understanding the trade off between government presence across the economy and growth, and only capable of bringing in more and more and more taxes.

So it seems looking around that it's unlikely that we'd find some kind of happy medium of lower inflation and higher growth.

Yeah, so we should be nervous, should be really nervous.

Yeah, Well, I think the crux for all this is the Office for Budget Responsibilities assessment and it's down to this neebolous concept of productivity and whether they think productivity growth is falling or rising indeed in the UK, and this is going to make a very big difference.

Every zero point one percentage point of its change, probably worse in where it expects productivity to be, will cost about nine to ten billion extra for the government for Rachel Rus to find, so most estimates, I think he's going to have to find an extra twenty billion on top of a ten billion head rugs of thirty billion in total to get a back itself back where she was in the spring statement.

There are lots of different other estimates, but that seems to be consensus.

But this will could dramatically change if they alter the productivity growth assessment.

This is really in the weed stuff.

We shouldn't be beholden to some form of spreadsheet analysis and having a change in targub on policy to keep up to this the whole time.

It is madness, but it's exactly what we've got for another three months worth or whatever.

It is.

Then a renmber to find out more scarce stories about which tax tax is going to have to raise to somehow make these magic numbers that up.

Yeah, I suppose one thing we could say, I'm im presumably the rest of the world, should they ever bother to look at us, look at us and think wow, all their senior politicians keep crying on the telly and looking at for example, example, Angela.

Raina's current problems.

Will only look at these through.

The lens of tax.

Okay, you know, obviously one of the things it says is, oh, look, stamp duty is incredibly complicated and difficult to deal with, such that even your own housing secretary can't understand the way your stamp duty works.

But given this political hiccup.

That the government are having at the moment, do you think less likely that they're going to go for more and increasingly complicated property taxes in the budget.

Could you maybe step back and say, do you know what, maybe they'll just leave that one alone because it's a little sensetive.

I hope they don't do it.

It's a simple thing called the Laugher curve.

And I think they've gone over the top of the Africa on stamp detail land tax and they need to reduce them outs where it was working perfectly fine for many, many years, but they keep on reading the honeypot and now they've got a situation where clearly they've basically killed the profiting market.

So this type of government cannot help but resist the temptation of an enables resistantation in the sense of always wanted to tinker with something.

And there's a lot too much noise in the press and various different traveling has being floated, so suggest they aren't going to have a look at it some stage.

I hope they avoid it.

I hope they keep things simple because virtual all the suggestions so far, if we replace one thing, they have to place with five other different things.

And the consequences and.

The warriors, of course, is that they bring they say they're going to replace something with something, and then they just bring it in and layer it on top, which is when you look at for example, you don't putting capital gains tax on sales of taxes or a wealth tax on more expensive houses, etc.

You know that's just going to be ladled on top of this apparently incomprehensible stamp duty.

Correct.

I don't think it's that incomprehensible.

It's all I would say is that, No, I don't think it is the three different lawyers irritating, but giving selective advice to each three of them is the reason why you get yourself in these troubles.

But the rest of us it's not that difficult, okay.

Now, apart from property, the biggest pool of available cash in the UK is in pensions, and we just talked about it.

Possibly one of the reasons why guilt yields the rising is because the pension industry no longer wants to or needs to hold quite so many long dated guilts.

But put that aside, that's still where the money is.

So if you were the chancellor, and if you're the current chancellor, and maybe you'll be the one delivering the budget, maybe it won't be.

But nonetheless, if you're looking for money, that is where the money is, right.

Yeah, And I think there will be changes to the amount we are allowed to put in each shirt.

It's currently sixty thousand.

It slightly oddly went up for forty thousand under Jeremy Hunt.

I think they may almost certainly.

I think they will reduced that same time the forty percent or forty five percent tax break.

I suspect they may want to blend that with the lower rate tax at twenty and perhaps gople on one rate I'll say around thirty percent.

So I definitely think they will reduce pension benefits in some says, I don't think you'll alter how many people will will will save.

I think most employees will still put thirty percent in rather than the forty percent may be enjoying.

It's not a very nice way of doing things, but I think it's a very easy one.

And because it's already bedded the system, and allreading is changing the rate and change the amount you put in, I think it'll be easy one.

And they can also very easily brush it off as a type of thing labor government would do, making it more advantageous for lower income people.

What about the amount of money that people come withdraw tax free.

I mean that's one that we know some of the people inside the treasury are very unhappy about that you can still withdraw well over a quarter of a million quid tax free from mesion.

It seems that that would be a pretty easy way to raise money.

Take that down to fifty.

I mean, obviously everyone's going to hate you, but you know, I.

Think they'll void that one.

I think that's harder than it looks, and as you said, it would be egregiously unfair.

You know, if you put all this money into a pension, you should be allowed to stick to the rules.

What you put in in the future is changed.

That's a different story, but very aggressive and taking away or something you could you're allowed to do on Wednesday, and then on Thursday you're not allowed to do it.

I don't think they will do that.

I hope they they'll do that.

I think that's very unfair.

Have you said that.

I have made sure I've taken mine out just in case, have you Interesting?

Now, the one thing that's happening with all this guilt market or bond market turmoil around the world is that the gold price has gone berserk, something we've been telling people's going to happen for nearly thirty years now, and here we finally are success.

Yeah, we've broken up.

It should continue to raise higher.

I note this time round, it's silver's going with it, possibly even leading it.

You could argue, but you know, look, this is just a symptomatic of of we've got Trump tariffs and possibly getting ruled out and what happens in place if that was the case.

You can see why.

You know, central banks allegedly, I'm not sure how you can really trust this data, but they now hold more gold than they do you as treasuries.

You know, this is a long standing trend, and you know, look, I think there is not much to suggest that that gold will not continue to do exactly what's been doing for the last year or more, and it will probably be continued to ahead higher as this world gets more complicated and confusing, and indeed people are looking at stock markets all time highs and thinking that doesn't make any sense.

With bond yields this hive as normally you would expect that would hurt equities.

Maybe that comes at some point.

Did you take that money to go out your passion and shovel it end?

Gold?

Spedule?

A whole lot of it.

I have put it in other things.

Some of it's all but not enough, clearly.

No, never enough, never enough.

You know, for years and years and years you talk about gold, you tell people about gold, and then when it actually happens.

Of course you don't have enough gold, but as you say, it does have interesting implications for the UKs dot market as well.

And of course, you know kept smaller caps that had a fairly lousy beginning of the week.

The footy one hundred stocks absolutely fine.

But nonetheless, if you're getting to the point when you can get a better yield from a bond than you can from an equity, things do you begin to change, don't they?

Yeah, well that's a very interesting point.

I mean, if you think about it in unity terms, which we always used to have to be forced into doing with our pensions, these yields are very attractive.

At some point people are going to realize that this is a great opportunity to lock in five points something yields and in a sort of a tax efficient way, it can be even higher.

That is making more sense.

And I don't know why we don't make more of anuities and make it better regulated, more visible, and more competitive.

And I think that something this government could do to help, if they wanted to do something positive towards thevention industry.

What's the end game do you think, Marcus?

I mean, here we are we talk about the fiscal problems of the UK.

We talk about rising guilty als, we talk about the gold price, etc.

Is there any way that we can pull back or weaves can pull back from the brink, or do we look forward and say, actually, things are going to get really nasty over the next few years.

Well, I'm not too persimistic about the UK economy and the context that what this government is doing, which is not great is that they're shifting and all the spending into the public sector away from the private sector.

But the private sector has actually been fairly resilient, or more resilient this year than we should have expected.

I do believe the banking will have to layer interest rates, which will in theory help, And I think that we are destined for more than one percent but less than two percent growth for the foreseeable But that isn't the end of the world.

We don't have the worst debt GDP though some people think we have.

We are not going anywhere near the IMA.

All these sock stories about the IMF is fairly I'm understanding a couple of things.

One, our economy six lives in the world three trillion more is too big to bail out.

The IMF doesn't have a firepower.

It's not the right type of crisis.

The IMF last time bailos up more as we had a foreign currency crisis.

That are yeah, in a sense of current account deficit issue, which which we still do to a degree, but not to quite at the same extent.

We are on our own in the sense that France is even worse predicament the LISTA has Germy to bail that out again.

Yeah, well that the IMF can't bail out France either, and it.

Wouldn't be able to, and it wouldn't want to.

That would be up to Germy phrase.

But you know, they can't bail out either these huge economies, and nor could.

They're the wrong types of crisis.

There's nothing the RMF could suggest or do which would help anyway.

So the point is that we have to stop government spending rising at the level it is.

That is what has to break, and this government has to realize it and will unfortunately realize it sooner hopefully rather than later.

Well that will be interesting, be fascinating to see what drives them to actually realize that and start doing something about it.

I'm slightly less optimistic than you, but Marcus, anything else we should say before we finish.

Up, No, might I just think that this is unfortunately going to be a long drawn out autumn with ever more scared stories on what taxes, well taxes and various other different things are going to come out, and it's so unnecessary.

Yeah, I sincerely hope that the banging stops its active concerted tiding policy.

We'll find out that on the September the eighteenth.

Hopefully the Federal Reservoi of cut interest rates by then, and hopefully that means the banking itself will will start thinking about that in November, and then maybe, just maybe we'll be slightly better stage if the OBR gives us a reasonably optimistic outlook on the economy.

Brilliant.

Thank you, Thank you, Marcus, and thank you for listening to this week's Marin Talks Money debrief.

If you like us, rate to review and subscribe wherever you listen to podcasts or so be sure to follow me in John on x or Twitter at Mary inn sw and John underscoore Stappic, and Marcus is at Marcus Ashworth.

This episode was produced by Somersati and Moses and Questions and comments on this show and all our shows are always welcome our show.

Email is Marimaney at bloomberg dot net.