If You Think Austerity Is Doomed To Flop, Then You Should Short UK Corporate Debt

Cameron Shame

In a reach, Bloomberg reports that because UK PM David Cameron is pursuing aggressive austerity, UK corporate debt outperformed the rest of the world last month, clocking in with a 3.5% return.

The title of the piece is: Cameron’s Austerity Plan Makes U.K Debts World Beater, so it’s obviously trying to draw a bright line between the performance of UK debt, and Cameron’s actions.

But really, there’s no evidence (or at least none presented) that the strong performance is associated with austerity.

And beyond that, if you’re sceptical of the sustainability of austerity (just look at Ireland, Romania, etc.) then this would seem to set up a great medium-to-long term short bet, not because the UK is going to have a sovereign debt crisis or anything like that, but merely because growth is likely to be mediocre (conversely, if you’re an austerity bull, then that bet doesn’t make sense).

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