What the Siege of Mafeking and the European bond market have in common
It isn't the European bond market itself that determines the price, says Merryn Somerset Webb. It's what's going on around it.
I'm reading the latest update from Ruffer's Jonathan Ruffer. It's always interesting, but there is one insight that I want to just quote for you. Why did one third of all euro denominated government short-dated bonds in March have a negative nominal yield in March, asks Ruffer. "The answer is that there was a famine of proper government paper needed as collateral."
Quantitative easing had taken out swathes of it, and whenever there is a shortage, the price goes up. The thing to remember is that it is the circumstance, not the bond, which is the reason for the expensive price. "A bottle of water during the Siege of Mafeking reached a fancy price the bottle became almost worthless when Mafeking was relieved; it has nothing to do with the water per se."
This might be an obvious point to make, but Ruffer expresses it particularly well here. The price isn't about the thing, it's about the circumstance. Something for bond investors to remember when (if?) monetary policy begins to tighten.
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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