Tuesday, March 30, 2010

Canaries at the Treasury over negative swap spreads

The FT's Gillian Tett today highlighted a curious reversal in Treasury bond spreads, asking in her article Will negative swap spreads be our coal mine canaries? whether we might be seeing the start of something scary.

Tett explains that the yield on ten year Treasuries is supposed to be lower than the cost of borrowing in the interbank market, or swaps. The idea that this "swaps spread" is always positive assumes, logically enough, that private banks will go bust before governments do.

But recently there has been an inversion of some swap spreads, so it is now cheaper for banks to lend to each other than to the US and UK governments through 30- and 10-year government bonds. Is this the canary that indicates a deadly gas leak at the Treasury?

Monday, March 29, 2010

Chancellors debate promises policies for wealth inequality

Wealth inequality looks set to become an election issue, according to comments from the shadow chancellor, George Osborne, and Liberal Democrat treasury spokesman, Vince Cable, on Monday night.

Their comments will be taken as a validation by One Society and The Equality Trust, which argue that many social problems can be tackled by addressing the unequal distribution of income within society.

In a live televised debate on Channel 4, Osborne and Cable agreed with the chancellor, Alistair Darling, that they want a fairer society. Osborne and Cable then went on to cite wealth inequality specifically as a factor behind their policy ideas.

Cable outlined several policies aimed at tax fairness and the financial services industry. “You have to reduce wealth inequality,” he said.

Osborne pointed to falling social mobility and increasing child poverty, saying: “The gap between rich and poor makes a society weaker. A fairer society is an objective of government.”

Darling did not mention wealth inequality during the debate but noted that his one-off bankers’ bonus tax had raised a lot of revenue. “Fairness must be central to government,” he said.

Wednesday, March 24, 2010

Budget 2010 - what does it mean for equality?

"Great inequality is the scourge of modern societies," reads the introduction to The Equality Trust's website. Until recently I had thought spam and alcopops were top contenders for that title, but a presentation of new research hosted by the Policy Exchange last week has changed all that.

The Equality Trust was promoting the evidence of a new book, The Spirit Level, about the effects of income inequality on society. According to the speakers, its main insight is that income inequality is closely linked to social well-being as measured by health, crime and various other statistics, with the surprise being that the correlation is just as strong among the rich as the poor.

For today's budget, Capital Ravings has put aside its alcopops and spam cartons to work with the Equality Trust's political wing, campaign group OneSociety, in assessing what the budget means for inequality. Here's the summary: