It’s pretty clear that the pressure is on the European Central Bank (ECB) to come up with some form of policy response at their next Governing Council meeting in March. Take, for example, the 5-year, 5-year EUR inflation swap rate (i.e., the swap market’s estimate of where 5-year inflation rates might be in five years’ time), which has taken a nose dive to 1.5% (see chart below). This is remark…Read the article
There has long been a well-known ‘wedge’ in the UK index linked bond market, since the bonds pay RPI and the Bank of England targets CPI. The wedge is the difference between these two price indices, and over the long term is thought to be approximately 1%. So over the long term, and with all sorts of caveats, RPI will be around 1% higher than CPI. The reasons for the wedge are essentially that …Read the article
We recently blogged about the uninspiring performance of many fixed income asset classes in 2015. Investment grade (IG) corporate bonds certainly had a tough year as credit spreads trended wider, both in the USD and the EUR market. Taking a look at option-adjusted spread (OAS) levels, USD IG credit (+29 bps) marginally outperformed against EUR IG credit (+36 bps) in 2015. In both cases periods …Read the article
There is currently a lot of concern regarding the US economy and its ability to withstand the collapsing price of oil and mined commodities, the Chinese slowdown, and the recent quarter (yes, quarter) point rate rise – or given the current market mood, its ability to cope with a doubling of the Fed funds rate! Whilst high yield spreads are close to recessionary levels, this is skewed by the ene…Read the article
A year ago today the Swiss National Bank (SNB) unexpectedly discontinued its CHF peg against the euro, causing huge moves in the FX markets. On the anniversary of the peg removal I thought it would be interesting to see how the Swiss economy has developed over the past twelve months.
Swiss economy robust, but not immune during 2015
The Swiss economy actually proved to be quite resilient in 2015…Read the article
We recently blogged about the marked effect the collapse in commodity prices, particularly oil and energy, have had on global inflation rates across the world. Headline inflation rates in major western economies have been in, or have flirted with, deflation throughout the year in spite of ongoing economic growth and a steady recovery in labour markets.
An interesting issue is whether this, seem…Read the article
I blogged in 2014 with good news for cake lovers; falling soft commodity prices indicated that the cost of baking cakes was getting cheaper. Unfortunately (and in contrast to hard commodity prices, notably oil recently hitting new post global financial crisis lows), the final quarter of 2015 depicted a reversal in trend with soft commodity prices on the rise.
In September we discussed the pote…Read the article
Oil price moves and their impacts on emerging markets will continue to be a hot topic in 2016. It is true that economies which rely heavily on oil exports and fiscal revenues, such as Saudi Arabia, Russia or Venezuela, have been facing an extremely challenging macro environment with the decline in oil prices. But, overall, there are more net oil importers than exporters amongst the developing e…Read the article
Following on from Gordon’s review of the best and worst performing fixed income asset classes last year, I wanted to take a more in depth look at how emerging markets performed in 2015 and what to look out for in 2016.
Some themes that drove the market in 2015 were the same themes than drove it in 2014. Once again, asset allocation was critical. Local currency debt, for the third year running, …Read the article
Looking back over the past year it’s evident that decent returns were much more difficult to achieve than in 2014. Within my sample of 85 different Bank of America Merrill Lynch bond indices (and as you can see from the smaller sample in the chart below) most indices fell within the -5% to 5% total return range for 2015, whereas most fell within the 5% to 15% range in 2014.
In 2014 though, mos…Read the article