Real and nominal matter when talking about bonds

Aditya Chakrabortty gives us something that really should disqualify from being taken seriously on matters economic. There’s a difference between nominal and real and when talking about bonds that difference really does matter:

The margins forecast by the OBR were too small for comfort, especially considering bond investors charge the UK the highest interest rate of all G7 rich countries – higher than France, which lost a prime minister in October,

In any useful sense this isn’t true. Because of that difference between real and nominal.

That difference itself is do we talk about the interest rate before or after accounting for inflation? Nominal rates are higher here, sure they are: 4.5% on the 10 year gilt as opposed to 3.4% in France. But inflation in the two places is 0.9% there and 3.6% here. So, the French real interest rate is 2.5% and the UK one 0.9%. France is being charged a higher real interest rate than the UK*.

That difference between nominal and real is, well, it’s a difference, no? An important one too.

But then The Guardian on matters markets and finance and economics, eh?

Tim Worstall

*Yes, we can get much more complicated, expected inflation and FR being part of the euro and so on. But this simple version still stands.