UK now paying less than Germany for borrowing

THE cost of Britain’s borrowing has sunk below that of Europe’s “safe haven”, Germany.

Britain is now paying 68 basis points less for its two-year debt, 50 basis points less for five-year debt and 28 basis points less for ten-year notes.

Most economists attribute the crossover to the hawkish stance of the European Central Bank versus Bank of England governor Mervyn King’s clear commitment to loose monetary policy.

“People are getting nervous not because of any deep-seated concerns about Germany, but because as interest rates rise, yields will fall,” said Newedge’s Bill Blain.

However, Capital Economics’ John Higgins warned against making assumptions: “The idea that – term premiums aside – the yield on a long-term government bond is simply a function of the expected path of short-term interest rates does assume, however, that such securities are ‘risk-free’,” he said yesterday. “Increasingly, this is a dangerous assumption, underlined in the case of Germany by the guarantees it is providing to bail out weaker Eurozone member states.”