Away from the limelight, a silent financial crisis is brewing
When thinking about falling asset values, we tend to focus on house prices, equities, and even fine art, wine and antique furniture.
But how about this for an asset price crash: when issued less than two years ago, the March 2073 Index-Linked Gilt was priced at around £330 per unit of stock; the current price is just £62, or less than a fifth of its value when initially sold.
The effect has been to transform a negative yield of 2.5pc into a positive one of 1.13pc. What possessed the original buyers to pay such an inflated price is anyone’s guess. Even when issued, it was obvious that there was a serious bout of inflation on the way.
The answer, I suppose, is that if God had not wanted them sheared, he would not have created sheep. Years of ultra-low interest rates had conditioned investors to think rates would remain low forever. Any inflation would be transitory, they assumed. Lessons are again being painfully relearnt.