It’ll All Be Fine. Truss Me.

A renewed sense of angst was evident across markets Thursday, as the respite provided by the Bank of England’s emergency intervention in UK debt markets faded.

Although they’d later recover, gilts and sterling were under pressure following Liz Truss’s first public remarks since the onset of a market meltdown that saw the pound trade at a record low. In what the BBC described as “a series of testy interviews” with local radio stations, Truss reiterated her willingness to take “controversial and difficult decisions.”

Truss’s silence during this week’s existential market turmoil stood in stark contrast to the iron-willed persona she’s keen to present. Saying nothing while your currency burns and your debt collapses isn’t a sign of defiance, and even if it is was, the UK doesn’t need defiance. The country needs an acknowledgement from Truss that her plan wasn’t well received, and that she understands why.

She doesn’t have to agree with critics. Nor does she have to abandon her growth plan which, under different circumstances, markets might’ve been willing to swallow. But when it comes to the pound and UK government bond yields, there’s nothing to “agree” or “disagree” with. There’s a run on the currency and the UK is facing what amounts to a boycott of the nation’s debt. There were reportedly no buyers at all for long-dated gilts early Wednesday, prior to the BoE’s intervention.

Importantly, the BoE telegraphed its plans to pare the bank’s government bond holdings months ago. There was nothing surprising about last week’s QT unveil. Although there were the usual questions about whether the market would countenance the active selling of government bonds by a developed market central bank, those concerns were of the boilerplate variety — so, the same general questions we’ve all been asking for at least half a decade. They weren’t UK-specific questions. Nobody that I’m aware of thought the onset of active gilt-selling by the BoE would trigger an overnight collapse in UK government bonds. It was the juxtaposition with Truss’s unfunded tax cuts and borrowing associated with the growth plan that unnerved markets. Traders may’ve been aware of Truss’s plans for weeks, but markets were aware of the BoE’s QT plans for months, including the likely start date.

Truss surely knew of the imminent peril to the nation’s pension funds earlier this week. The BoE had been in discussions with market participants for days. To suggest she wasn’t apprised or was too busy behind the scenes orchestrating a rescue to say anything, is a ludicrous stretch. It’s more likely that Truss, like everyone else from MPs to traders to BoE officials, was a deer in headlights. With just hours (literally) to go before a cascade of margin calls triggered a total crash, the BoE snapped out of it. (I should note that the pension issue wasn’t about long-term solvency. It was a liquidity crisis. But if you don’t survive tomorrow, next year is irrelevant.)

Read more: Pension Panic Puts Central Banks Back In Intervention Mode

If Truss understands or appreciates any of this, it wasn’t obvious. She doubled down on trickle-down, claiming there’s “plenty of evidence” that tax cuts boost growth (there’s not), but like all politicians peddling the (admittedly pleasant) fiction that the key to growth is lower taxes, she was compelled to admit that she couldn’t say with certainty when the measures might pay off. “We won’t see the growth come through overnight,” she said. “What’s important is that we’re putting this country on a better trajectory for the long term.”

Truss would like to believe that canceling a planned corporate tax hike makes her a hero in the business community, and maybe it does. But the implied cost of refinancing has soared. As Bloomberg noted on Wednesday, “the difference in the rate investment-grade companies need to pay if they issue sterling bonds now compared with coupons on existing debt climbed to 325bps” this week. That’s higher than the gap seen in the aftermath of Lehman.

Additionally, the implied burden for households from surging mortgage costs could be multiples of the savings Kwasi Kwarteng touted last week while unveiling the tax cuts. The jump in UK two-year swap rates (and vol) looks like Dogecoin after an Elon Musk tweet (figure below).

That’s bad news. As one managing director at Moody’s put it, “All we know is the direction of the swap rates: They’re going higher and there’s going to be a need to price [mortgage] products at a higher level than was the case before Friday’s announcement.” Not raising rates on new mortgages in such an environment would mean writing them at a loss, which nobody will do.

Truss has previously assailed the BoE for its role in surging inflation, but now it’s likely the bank will be forced into draconian rate hikes in order to preempt what many believe will be much higher and stickier price outcomes, notwithstanding the mechanical impact of the energy price caps. Although she claimed to respect BoE independence, it’s not a stretch to suggest Truss will eventually criticize the bank for working at cross purposes with her growth plan by raising rates to punitive levels. In the meantime, the BoE’s money conjuring to rescue gilts is very bearish for the pound. Options traders aren’t convinced the drama is over (figure below).

The BoE’s bond-buying is aimed specifically at short-circuiting the pension “death spiral,” but it’s hard to escape the notion that it’s just debt monetization. “The central bank will be financing inflationary government spending that just happens to reward a core constituency of the new government,” Bloomberg’s Sebastian Boyd wrote, in a short blog post on the terminal. “To compare this with an emerging market may be unfair,” he said. “This is frontier-market behavior.”

Truss defended the pound — by noting that “currencies are under pressure around the world.” I’m not sure that’s particularly helpful.

“As presenter after presenter pressed her about the concerns of their listeners, Truss tried to remain composed as she defended her economic approach,” the BBC’s Leila Nathoo wrote, recapping Truss’s whirlwind radio tour on Thursday. “But at times she lapsed into uncomfortable laughter and there were a number of awkward pauses.”

Asked if the tax cuts, which unequivocally benefit high-earners, were inherently unfair, Truss said “It’s not fair to have a recession.”