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Are rating agencies overlooking the impact of COVID-19 on Eastern Europe and Central Asia?

Rating agencies’ drawbacks come to light again

In times of crisis, markets understandably pay particular attention to the actions of credit rating agencies. For example, during the global financial crisis of 2008-09, the rating agencies were widely accused of failing to identify the widespread vulnerabilities in the financial system, reacting with “behind-the-curve” blanket downgrades. The …

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Emerging markets outlook: seven themes for 2021

Markets ended 2020 in a buoyant mood, with emerging market spreads tightening in the final quarter as the US election result and positive vaccine news provided a boost to investor sentiment. While nobody has been blind to the global recession, focus has shifted to expectations of an economic recovery.

Most people were happy to see the back of 2020. It was an eventful and challenging ye…

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The Fed’s Dots: Treasuries still dear, but no longer massively mispriced

Here’s an update of my favourite long term measure of bond market valuations.  I’ve been updating this chart on the blog over the years, and if you’d bought and sold US Treasury bonds when they diverged significantly from the range implied by the Fed’s long term rate expectations, you would have done OK.

So what does my favourite chart show?  I’ve shown the 10 year US Treasury bond yie…

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Testing the zero bound: the strange effects of a strange recession, in 2020 and beyond

This year has seen the sharpest and largest economic downturn the modern global economy has ever seen. However, as I have commented several times this year, this recession is a rather strange one: for once, this time really is different (see chart below).

This recession has not been caused by any of the usual suspects: namely tight financial conditions, a real or market bubble bursting…

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ESG integration – what about sovereigns?

In an increasingly sustainability-conscious world, many investors are turning to environmental, social and governance (ESG) driven funds. As well as offering a useful framework to analyse financially-material risks, for investors who object to coal-mining and oil-refining, or to alcohol and gambling, it makes sense not to finance companies which engage in these activities through their investm…

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COVID-19 and the Chinese renminbi: room for further strength, but near-term upside may be limited

While many emerging market currencies have posted lackluster returns this year, the Chinese renminbi has been a clear outperformer, having appreciated by 5.9% against the US dollar in 2020.

There are a few important drivers that explain the currency’s appreciation this year. First of all, China has handled the COVID-19 virus better than most other countries and, as a result, has suffere…

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Africa’s sovereign debt: an interview with Gregory Smith

In this 15-minute interview I ask M&G’s Greg Smith, an emerging market debt strategist with a speciality in Africa and formerly a World Bank economist in Zambia, how the continent is coping with the Covid-19 pandemic.  We also discuss how worried we should be about the negative headlines coming out of the region over Zambia’s recent default on its international bonds.  Is this the start of a w…

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RPI reform: result as expected – market reaction not

The background to Wednesday’s announcement

In line with market consensus, on Wednesday the government announced that RPI would be made into CPIH, a lower number. This is not being done for political reasons by the Chancellor, but for statistical ones.

As I have written about previously the national statistician has made clear for years that it does not like RPI, and that it has been frus…

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“High” Yield yields hit a low

The dramatic rally in US high yield bonds since the end of September saw yields reach lows of 4.6% earlier this month, the US high yield index’s lowest level since 2000.  Yields have risen modestly since then but remain very tight: 4.9% at the time of this writing.  The US high yield bond spread over risk-free government bonds has narrowed close to its pre-Covid level (see chart below), a tren…

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