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The Case for People’s Quantitative Easing by Frances Coppola. An interview and a competition

A decade on from the Global Financial Crisis after multiple rounds of QE across the developed economies, we are stuck with mediocre growth rates, the anticipation of renewed policy easing and the prospect of yet more bond buying from the ECB.

Yet much of the academic research into the impact of QE suggests there are diminishing returns from successive bouts of bond purchasing. It also seems…

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Beware the widow-maker

Over my 25 years in bond markets, there’s always been one trade that becomes known as “The Widow-Maker”. Being underweight long-dated gilts was one, at a time when new pension regulations sent yields plummeting, and shorting the Japanese bond market also became deadly as the Bank of Japan slashed rates to zero. Today, widows and widowers are being made in the German bund market. Yields on t…

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What if the ECB starts buying corporate bonds again?

In his distinctively dovish Sintra speech two weeks ago Mario Draghi left the door wide open for further loosening of monetary policy in the Euro area. All options seem to be on the table to bolster European inflation numbers, including a new round of quantitative easing. Draghi’s remark about the ECB’s Asset Purchase Programme (APP) still having considerable headroom fuelled hopes amongst ma…

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Would demutualising Germany’s Sparkassen (savings banks) kick-start consumption growth and give the eurozone a boost?

This week the 10-year German bund yield hit a new record low of -0.33% in the wake of Draghi’s Sintra speech which had echoes of his 2012 “whatever it takes” declaration. Why so dovish? Manufacturing data from the eurozone has been universally bad lately, and inflation expectations are collapsing. The core inflation rate is now just 0.8% and the ECB’s 2% target looks an impossible goal. The mar…

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The changing nature of market liquidity – understanding banks’ corporate bond inventory

When looking at the risk premium embedded in the extra return you receive in owning corporate debt versus “risk free” governments, one of the factors that we have to take into account is the less liquid nature of corporate bonds. This adds to the potential risk premium from a liquidity and transaction cost perspective. A constant theme since the financial crisis has been the belief that the cra…

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Eskom, Pemex: two distinct stories but a similar root of problem

Fully government-owned corporate bond issuers (or quasi sovereigns) are one of the most interesting areas of emerging market debt investing, due to the hybrid nature of their credit risk: partly corporate credit, partly sovereign risk. Venezuela’s national oil company PDVSA is an example of what can go wrong, as it is in default. Bond investors are therefore currently spending more time looking…

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Despite Brexit, Sterling credit holds up with a surprise front runner

With Brexit in every headline, it’s hard not to form an opinion on the possible outcome for the UK. Investors are getting increasingly edgy about the impact on certain asset classes, and I have read many articles predicting which sectors will do well in various exit scenarios. Sterling credit has remained healthy since the referendum, led by robust fundamentals and not by politics as the pound …

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Should investors care about GDP data revisions in emerging markets? A Benin case study

Statistical data represents only an approximation of reality, and sometimes not a very good one. Generally, the less economically developed a country is, the worse the quality of the data provided by the government authorities. This increases the likelihood of later revisions, as new facts are uncovered or the methodology adjusted to better reflect the changing reality. Investors in emerging ma…

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Bond indices are shifting their attention to China – so should you

It is widely recognized that China is globally well-integrated from a trade perspective (it accounted for 13% of total world exports in 2017 according to the WTO). Yet in comparison, its financial markets remain in relative isolation. Indeed, despite having the 2nd largest equity and 3rd largest bond markets in the world (currently around $13 trillion), foreign participation in these markets re…

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Could ‘Green Bunds’ be a cure for Europe’s economic malaise?

Compared to one and a half years ago, when the prevailing narrative was still revolving around global synchronised growth, the economic outlook for Europe has darkened significantly. From ‘peak optimism’ levels in late 2017, Euro area real GDP growth has slowed to 1.2%, while Eurozone manufacturing PMI has dropped by more than ten points. Even the notoriously optimistic ECB eventually had to co…

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