Bonds, equities and the limits of populism

The loose fiscal policies at the heart of populist economics may portend tough times for equities.

As the incoming Trump administration prepares to take office, and nationalist political parties surge across Europe, mainstream governments are struggling to maintain public patience with the compromises required by adherence to orthodox economic policies.

Here in the UK the Government finds itself assailed on all sides as it seeks to stimulate growth and maintain public services within narrow fiscal parameters. UK 10-year bond yields touched a 16-year high of 4.93% last week, rising sharply from 3.75% in mid-September, threatening to undermine the the Government’s ‘ironclad’ promise to balance the current budget in five years: the £9.9bn of fiscal headroom provided for in the October budget is already closing.