Any government of a country that borrows from international markets will now know that its economic policies are judged in emphatic terms amid high inflation and slowing growth.
The UK’s attempt to prioritise populist measures triggered the equivalent of road rage from the bond market. The Bank of England stepped in to avoid catastrophe and Prime Minister Liz Truss’s government has reversed almost all her policies and pledged to cut public spending. On Thursday, she resigned, having never recovered politically from the turmoil.
While the bond market is actually a broad collection of government and corporate debt, this grouping has dictated our economic futures for decades. Investors want to be compensated for what they perceive as a higher risk and will vote with their feet to get it unless something is done to reduce this risk. Yields on 10-year US Treasuries - a lodestar for the pricing of global assets - are near a 14-year high. Bond yields rise when prices fall.
When the market rages against an issuer – as the UK experienced – like some kind of muscle-bound comic book villain, the result is a sell-off, which drives up the cost of borrowing. Usually this is enough to terrify a company or country into submission and curb any attempt to over-spend and over-borrow.
It has happened several times in recent history and has even kept US presidents in check. Bill Clinton famously had his wings clipped in the 1990s.
A little more than 14 years ago, when the financial crisis hit and lending was about to grind to a halt, central banks soothed the pain by buying up trillions of dollars of bonds to keep the gears moving.
The UK wanted to stimulate growth and the market was highly sceptical it would work. The market won the argument
But who is being best served by this subservience to bond markets?
Governments? Yes. In the medium to long term, keeping borrowing rates lower can save tens of billions of dollars. The banks? On many levels, as it suits them to let the bond market dictate the way of things. This is, at least, predictable and obeys the models that bankers build to ensure they can manage risk.
However, bond investors are not the same as households or families. They are typically big funds. While it is a sound argument that a collapse in bond prices hurts the value of pensions and mortgages – what happens when a majority of people no longer own their own home or look forward to retirement?
Today the bond market shouts loudest. Tomorrow its voice could be drowned out by an unprecedented scale of social disorder, following years of rising inequality.
Austerity policies across Europe over the past decade were borne by populations while trillions were spent – and printed – to support the financial system. The bond market was kept happy by this steady diet of quantitative easing. Only a narrow group, typically those already wealthy, benefited from the rising value of assets as wages remained suppressed and economic growth remained anaemic. There is no longer any appetite for a return to such a scenario.
According to the Atlantic Council, since 2008 major central banks have pumped more than $25 trillion into the economy through quantitative easing. Meanwhile, inflation is at levels not seen in 30 years and central banks are raising interest rates to stamp it out, even if it means forcing a recession.
People are dealing with a cost-of-living crisis and governments must respond – which will mean spending more or taxing less. The UK wanted to do both to stimulate growth and the market was highly sceptical it would work. The market won the argument.
Where does that leave governments? With very little wiggle room ahead of the expected economic downturn and with energy prices rising. They will be nervous about any plans to borrow and spend more.
This anxiety is not ideal. Investors must give policymakers more leeway to think more creatively about how to tackle our current conundrum or add to the volatility. The argument keeps being repeated that now is not the time for fiscal experiments, but when is the time if not now? When there is a desperate need for new thinking.
The truth is the world is a riskier place. Post-Covid-19 pandemic, we have seen the weaknesses in our supply chains and global trade systems. Climate change is affecting us all, wherever we live. There is political instability and a lack of trust in institutions across regions. Technological advances and changing societal norms are also at work.
We must adjust to this new reality as best we can and given all the complexities, we are struggling to be additionally compensated for this greater difficulty. Industrial action is becoming increasingly common as people demand pay increases and better working conditions.
Many in government and business around the world say that this is unrealistic and only adds to the feeling of crisis.
Should investors not also hold themselves to this standard too? It is time for a new paradigm for bond markets and one that considers the well-being of all.
The bio
Favourite food: Japanese
Favourite car: Lamborghini
Favourite hobby: Football
Favourite quote: If your dreams don’t scare you, they are not big enough
Favourite country: UAE
UAE v IRELAND
All matches start at 10am, and will be played in Abu Dhabi
1st ODI, Friday, January 8
2nd ODI, Sunday, January 10
3rd ODI, Tuesday, January 12
4th ODI, Thursday, January 14
ARGYLLE
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The specs
Engine: 3.8-litre V6
Power: 295hp at 6,000rpm
Torque: 355Nm at 5,200rpm
Transmission: 8-speed auto
Fuel consumption: 10.7L/100km
Price: Dh179,999-plus
On sale: now
Understand What Black Is
The Last Poets
(Studio Rockers)
McLaren GT specs
Engine: 4-litre twin-turbo V8
Transmission: seven-speed
Power: 620bhp
Torque: 630Nm
Price: Dh875,000
On sale: now
Arrogate's winning run
1. Maiden Special Weight, Santa Anita Park, June 5, 2016
2. Allowance Optional Claiming, Santa Anita Park, June 24, 2016
3. Allowance Optional Claiming, Del Mar, August 4, 2016
4. Travers Stakes, Saratoga, August 27, 2016
5. Breeders' Cup Classic, Santa Anita Park, November 5, 2016
6. Pegasus World Cup, Gulfstream Park, January 28, 2017
7. Dubai World Cup, Meydan Racecourse, March 25, 2017
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Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
Global state-owned investor ranking by size
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United States
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China
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UAE
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4.
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Japan
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5
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Norway
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Canada
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Singapore
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Australia
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Saudi Arabia
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South Korea
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Killing of Qassem Suleimani
Killing of Qassem Suleimani
HOW DO SIM CARD SCAMS WORK?
Sim swap frauds are a form of identity theft.
They involve criminals conning mobile phone operators into issuing them with replacement Sim cards, often by claiming their phone has been lost or stolen
They use the victim's personal details - obtained through criminal methods - to convince such companies of their identity.
The criminal can then access any online service that requires security codes to be sent to a user's mobile phone, such as banking services.
Three ways to limit your social media use
Clinical psychologist, Dr Saliha Afridi at The Lighthouse Arabia suggests three easy things you can do every day to cut back on the time you spend online.
1. Put the social media app in a folder on the second or third screen of your phone so it has to remain a conscious decision to open, rather than something your fingers gravitate towards without consideration.
2. Schedule a time to use social media instead of consistently throughout the day. I recommend setting aside certain times of the day or week when you upload pictures or share information.
3. Take a mental snapshot rather than a photo on your phone. Instead of sharing it with your social world, try to absorb the moment, connect with your feeling, experience the moment with all five of your senses. You will have a memory of that moment more vividly and for far longer than if you take a picture of it.
'Peninsula'
Stars: Gang Dong-won, Lee Jung-hyun, Lee Ra
Director: Yeon Sang-ho
Rating: 2/5
'Panga'
Directed by Ashwiny Iyer Tiwari
Starring Kangana Ranaut, Richa Chadha, Jassie Gill, Yagya Bhasin, Neena Gupta
Rating: 3.5/5
Jawan
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The specs
Engine: 2.0-litre 4-cylinder turbo hybrid
Transmission: eight-speed automatic
Power: 390bhp
Torque: 400Nm
Price: Dh340,000 ($92,579