In a recent letter to the Guardian, Prof Costas Milas of the University of Liverpool challenges claims that Andy Burnham's economic policies are causing concern in bond markets. Milas argues that there is no evidence Burnham has agitated markets, despite what he calls 'unnecessary scaremongering' about bond vigilantes.
Academic evidence contradicts bond vigilante fears
Milas references existing academic work that has established an impact from online search activity and online news on sovereign yields. He cites the example of how Grexit talk raised Greek yields during the eurozone crisis. Applying this framework, Milas examined Google search activity and news coverage of Burnham over the past two months, finding no correlation with movements in the UK's 10-year interest rate.
'A close inspection of Google search activity and news on Burnham and its relationship to movements in the UK’s 10-year interest rate over the past two months confirms that he has not put upward pressure on our borrowing costs,' Milas writes.
Demosthenes' wisdom and market trust
Milas draws on the ancient wisdom of Demosthenes, who noted 2,400 years ago that a state's reputation is key to driving down borrowing costs. 'We should maintain our character of being trustworthy in all events,' Milas quotes the Athenian statesman. However, he emphasizes that in practice, there is no evidence Burnham is agitating markets.
Call for detailed policy explanation
Despite the lack of current impact, Milas advises that since financial markets are watching carefully, Burnham should explain in detail how additional borrowing—if he decides to pursue it—would be used to finance growth-enhancing policies. This would help maintain market confidence and avoid unnecessary volatility.
The letter responds to an article by Aditya Chakrabortty, who wrote that 'it’s not the bond markets Andy Burnham should be afraid of. It’s his own MPs.' Milas counters that the bond vigilante threat is overstated.
