No escape for John Healey as finance chiefs fly in to IMF debt storm

The Chancellor will fly into Bangkok this weekend for the International Monetary Fund’s annual meeting with the governor of the Bank of England’s warning to balance the books or risk bond market turmoil still ringing in his ears.

The meeting will be a bed of nails for John Healey, who will briefly interrupt preparations for his maiden Budget at the end of the month.

It comes days after government borrowing costs hit a 28-year high and the Bank’s Andrew Bailey, also on his way to rain-soaked Bangkok, sounded the alarm that a bond market storm could blow Healey’s fiscal plans off course.

Annual meetings of the International Monetary Fund (IMF) often take place in crisis – and this year is no different.

Managing director Kristalina Georgieva has warned that war in the Middle East was a clear and present danger for the global economy, threatening a return to 1970s-style inflation fuelled by the latest energy price shock.

Oil has jumped by 40 per cent since the conflict with Iran began in February.

Shock tactics: International Monetary Fund boss Kristalina Georgiev

The mayhem in energy markets has proved to be a slow-burn crisis, but as winter approaches, the outlook remains highly uncertain.

The sessions here this week are likely to be dominated by fears over the huge debts run up by sovereign countries and by big tech in the race to dominate AI.

The AI debt pile, estimated at more than $350trillion and counting, is where the biggest danger lies, but the two issues are intimately related.

Sovereign bonds set the price for private sector loans, whether they are residential mortgages or the fancy financing packages for Amazon or Nvidia.

The higher interest rates go, the more likely it is that weaker players in the credit supply chain could fall by the wayside.

The dangers are more acute because of the lack of visibility in loan markets caused by the rise in private credit provided by hedge funds, private equity and other financial intermediaries, which are largely unregulated.

Britain is seen as the weakest link, with its 30-year bonds yielding a chunky

6 per cent. But debt experts Pimco forecast this weekend that America’s benchmark ten-year Treasury bond could also soon yield 6 per cent, its highest level since 2002.

There are fears that governments will have to intervene with subsidies to protect consumers and defend business.

Bailey warned last week that ‘existing vulnerabilities in sovereign debt markets, credit markets and asset valuations could crystallise together’. In other words, be prepared for the gathering storm.

The message from Georgieva to governments is: ‘Tighten your belts.’ They need to rebuild financial buffers and calm fragile bond markets.

It is never clear what will trigger the storm, but for the Chancellor, being caught in an Asian time zone should the edifice blow up in Europe or New York may not prove the best place to be.

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