One of the extraordinary effects of the euro zone debt crisis has been the manner in which the market and media have taken the notion of safe haven investment to heart. Consider for example the fact that the situation we are currently in largely comes down to too much debt tied to real estate, mortgages, and property development. Consider then Denmark with the largest ratio of mortgage and private household debt to income in the world and you wonder why international money is pouring into the Danist mortgage backed securities to such an extent that interest rates are now negative. I mean, wasn't this the very products that got us here in the first place?
The same reverse logic can be applied to the UK where yields on Gilts are heading for new lows even as we learn from the most recent McKinsey study on global deleveraging that the UK is now the most indebted economy in the world even surpassing Japan.
Ben Davies and his team at Hinde Capital have also been wondering about the UK and the result is a timely and very detailed report on the UK economy, its challenges and how to solve them. The report has been published in two parts, with the first part coming out earlier this week causing a flurry of debate as it was picked up by Izabella over at FT Alphaville.
It is well worth reading, preferebly before you stuff yourself with more Gilts.