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The new Taper Tantrum – H2 outlook 2020

The first half of this year saw one of the fastest and most aggressive market corrections in history, as Covid-19 spread around the globe.  Just as unprecedented was the speed and extent of the subsequent recovery, thanks above all to governments and central banks having sent in the cavalry to boost liquidity and plug the consumer confidence gap.  Combining fiscal and monetary stimulus, the gl…

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Eastward Ho! The euro area’s push into the Balkans

The inclusion of the Bulgarian lev and the Croatian kuna in the Exchange Rate Mechanism II (ERM II), which was announced last Friday, marks a crucial step for both countries to becoming the 20th and 21st members of the euro area. Bulgaria and Croatia won’t imminently join the currency union, though. As stipulated in the Maastricht Treaty, prospective members are expected first to demonstrate a…

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Sustainable investors, it’s time to talk about Transition bonds

The EU has embarked on a mission to make Europe the first climate neutral continent by 2050. Rather unnoticed amongst COVID-19 headlines, the EU parliament approved the unified EU Green Classification System, also known as the EU Taxonomy for Sustainable Activities, on the 18th of June and turned it into law. A core pillar of the new regulation is to outline whether an economic activity qualif…

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QE goes global

Historically, one of the defining characteristics of emerging market (EM) economies has been that they generally have not been able to use monetary policy to stimulate their economies during crises in the way developed markets (DM) have. Usually, they have had to hike rates to limit capital outflows and defend their currencies, in doing so making economic recovery more difficult.

This …

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“Angrynomics” by Eric Lonergan and Mark Blyth: interview with the authors

This new book by Eric (an M&G multi-asset fund manager) and Mark (an economics professor at Brown University in the US) is getting a lot of attention at the moment: Martin Wolf put it on his list of “must read” books for FT readers over the summer, and the book’s ideas are very much answering the big questions of today.  Why are we all so angry?  Where did these culture wars come from?  Why ha…

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US Election 2020: The State of Events

“Events, dear boy, events”, UK Prime Minister Harold Macmillan responded to a journalist when asked what is most likely to blow governments off course.

At the beginning of this year, Donald Trump was favourite to follow in the footsteps of the previous three Presidents and win re-election. However, events have since unfolded that put his re-election into serious doubt.

Polling

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The U.S. labour market is back with a vengeance

Wowsers, the U.S. labour market never ceases to amaze bond investors. After the cataclysmic April U.S. employment report—nonfarm payrolls (NFP) had dropped by 20.7 million and the unemployment rate had shot up to 14.7%—there was broad agreement amongst market observers that May would prove to be another challenging month. In a Bloomberg survey of 78 economists, the most bullish forecast was a …

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You can trade ESG credit default swaps later this month: 3 implications for all investors

This month will see a significant step forward in the evolution of ESG (environmental, social and governance factors) as a part of fixed income investing, with the launch of the iTraxx MSCI ESG Screened Europe CDS (credit default swap) index. The past few years have seen a noticeable acceleration in investors’ ESG awareness, driven to varying extents by social conscience and evidence that ESG …

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Road map of a t-shaped “recession”: where are we now?

We are currently in the throes of the sharpest and largest economic downturn the modern global economy has ever seen. However, as I wrote in March this is very different from previous recessions.

To recap, a recession has three stages:

Stage 1: into recession

A rapid, record collapse in economic growth as normal economic life is dramatically curtailed for public health re…

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Quo vadis, BTPs?

It’s been a wild ride in May for Italian government bonds, so-called Buoni del Tesoro Poliannuali (BTPs). The yield spread of 10-year BTPs over 10yr German Bunds first rose to c. 250 basis points (bps) after the German Constitutional Court had ruled that the ECB’s Public Sector Purchase Programme (PSPP) was partly unconstitutional. Subsequently, the Italian risk premium collapsed to c. 190 bps…

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