Ministers will be rewarded by the markets if they take bold decisions in the autumn budget

Assume that Rip Van Winkle had gone to sleep on the eve of the US election last November, and then woke up yesterday and was told that developments included:

- Sushil Wadhwani

a) Donald Trump talking of firing Jerome Powell, the chair of the Federal Reserve, and asserting that only those who believed short-term interest rates needed to be a lot lower were qualified for the job. Moreover, he had tried to take the unprecedented step of firing a board governor.

b) The new US budget had been seen by the Congressional Budget Office as adding $3.4tn (£2.5tn) to the national debt over the next 10 years. By contrast, in the UK:

a) The government had worked hard to stay within its fiscal rules and had made no attempt to interfere with the independence of the Bank of England.

b) In terms of the outlook for monetary policy, two-year yields in the UK and US had come down by about the same amount. Under these circumstances, it would be reasonable for Van Winkle to expect that longer-term US yields would have risen by more than in the UK. Hence his astonishment when told that UK 30-year yields had risen by more than in the US.

In talking to investors, I encounter divergent views regarding Van Winkle's puzzle. One group believes it is an anomaly and, given a catalyst, UK gilts (bonds) should outperform US treasuries.