What a difference a day makes - at least to the holders of US and UK government bonds, and analysts. Since S&P said it would lower its outlook on the UK to negative from stable - which sparked suggestions the US might face a similar fate - Treasurys have faced tremendous selling pressure. In lunchtime trade in New York, the dollar plumbed multi-month lows against a range of currencies, which David Woo at BarCap attributed to âincreased concern about the magnitude of US debt issuance.â But on Thursday, some commentators were still relatively sanguine about what S&Pâs revision would do to investor appetite for UK government debt, and that of the US. As noted earlier here on FT Alphaville, Michael Riddell of Bond Vigilantes argued that healthy investor appetite for a massive gilt issue on Thursday suggested investors would shrug off a UK downgrade - much less a mere outlook change: The UKâs Debt Management Office issued Â£5bn of UK gilts maturing in 2014, and the issue attracted bids for 2.6 times the amount offered. This was impressive considering that, as RBC have pointed out, it was the biggest ever nominal amount of bonds sold in a single operation. But the tone has changed somewhat overnight. Jim Reid at Deutsche Bank argued thus in a note issued early on Friday morning (emphasis ours): There is not an insubstantial tail risk that weâll all wake up one day and find that the appetite to fund the generally unparalleled peace time Government spending is suddenly reduced. We think that we are going to have this tail risk hanging over us for many quarters and even years and predicting if and when that day comes is going to prove very difficult. The best possible (actually least bad) solution for the economy is for inflation to come back quickly enough for the huge Western World debt burdens to be eroded. However for this to succeed the bond market perhaps needs to be totally fooled. If it gets wind of higher inflation then we may be back to square one as funding problems arise or panic ensues. We think that it is inevitable that inflation eventually comes back in a fiat currency world but that it is going to be much harder to create than the market thinks. But perception is often more important than reality so we need to be aware of that. Hours later, Reuters columnist John Kemp flagged up the following headlines: UK DMO SAYS TO HOLD 19 OUTRIGHT GILT AUCTIONS BETWEEN JUNE AND SEPT UK DMO SAYS TO HOLD 4 MINI TENDERS AND 3 SYNDICATED OFFERINGS JUNE-SEPT UK DMO SAYS TO SELL NEW CONVENTIONAL SEP 2019 GILT ON JULY 7 UK DMO SAYS TO AUCTION LONG CONVENTIONAL GILT IN 25 YR AREA BY SYNDICATION IN JUNE 15 WEEK UK DMO SAYS TO SELL 30-40 YR LINKER VIA SYNDICATION IN 2ND HALF OF JULY UK DMO SAYS PLANS TO SELL ADDITIONAL INDEX LINKED GILT VIA SYNDICATION IN SEPT, DETAILS TBAâ According to Kemp, âthe DMOâs decision to start selling debt via syndications and to offer very long-term issues in index-linked form is a sign the UK government is running into resistance from investors to its huge borrowing needs.â That reduction in investor appetite for government debt of which Deutscheâs Reid warned may well manifest sooner rather than later. http://ftalphaville.ft.com/blog/200...mited-investor-appetite-for-government-bonds/ Short gilts as much as you can.