Companies have long relied on late payments to suppliers to finance their business: now they are turning to customers to fund their operations too. There is a steady flow of firms asking clients to buy bonds.
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Does Britain’s record low cost of government borrowing reflect the strength of the UK economy – or its weakness? Or simply acknowledge that our financial problems are not as bad as those of Spain, Italy and the US?
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Western economies have many reasons to be grateful to China. Cheap imports from there have kept inflation down in the developed world and Beijing’s has re-invested the proceeds in bonds that finance western deficits.
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Investors have loved corporate bonds over the past couple of years, even if companies themselves have shown little interest. With business busy repaying its debt there has been few issues, but companies should not give up: institutional demand remains high.
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The government’s losses from Black Wednesday are legion, but already quantitative easing has cost us more than that doomed attempt to save sterling in 1992. The QE losses have reached £8bn and the Bank of England hasn’t yet started to unwind the programme.
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Banks have done few favours for small companies since the credit crunch. Now the government – which has no love of banks either, having ruined the national accounts to rescue them – is looking for ways to cut out the traditional lenders.
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There’s one good reason why the UK’s sovereign debt will not lose its AAA rating. It has nothing to do with Britain’s financial strength and everything to do with the credit rating agencies wanting to avoid regulation.
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Getting your insurance company to give you the money to pay its premium is a clever wheeze, but that’s what Lloyds Banking Group is planning. If it finances its participation in the government’s bad-debt insurance scheme with a rights issue, the state, as largest shareholder, will have to stump up the biggest part of the £16bn cost.
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When the recession is over, the great debate will not be on what caused it – there is no great argument on that – but on whether quantitative easing helped end it.
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Is the corporate sector going to hell in a handcart – or has the bond market misjudged the risk of default? Unless business goes bust en masse, bonds yielding 10 per cent look a good buy and a bad sell.
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