Brazil has been facing the perfect storm since the re-election of Dilma Rousseff in October 2014 and asset prices in Latin America’s largest country have collapsed. Credit default swaps on Brazil 5-year sovereign debt in US dollar and hard-currency corporate bond spreads widened to as much as 545 bps and 938 bps respectively, as at the end of September 2015, which is higher than during the 2008…Read the article
Reverse Yankees, i.e., bonds issued by US entities in currencies other than USD, have become an integral part of the global investment grade (IG) corporate bond universe, particularly in the European IG space. For treasurers of US companies the issuance of EUR-denominated Reverse Yankees offers several advantages:
- In case a US firm reporting its results in USD has operations within the Eurozon…
One of the key objectives of modern monetary policy is to anchor inflation expectations, because managing inflation expectations is the first step to managing inflation.
The extent to which inflation expectations are anchored can have direct implications for the performance of inflation and the broader economy.
Where inflation expectations are not very well anchored, falling (or rising) inflati…Read the article
Our new survey, carried out with YouGov across several EU member states (the UK, France, Germany, Italy, Spain and Austria), shows that there is a low level of support for future sovereign bailouts in the event of debt crises and economic difficulties. The following question was asked as part of the M&G YouGov Inflation Expectations Survey – the full survey will be released here in early Octob…Read the article
This morning CPI in the UK has fallen from 0.1% in July to 0% in August, both in year-over-year terms. Continuing deflationary trends observed in transport (largely petrol) and food (supermarket price wars), which have together taken 0.7% off CPI over the last year, were dragged back up to the zero bound by alcohol and tobacco (these always go up!), education and restaurants and hotels, with sm…Read the article
Whilst economic forecasters are currently concerned about falling oil prices and the implications for global growth, weather forecasters worry about the impact an El Niño weather event could have on global weather patterns. In August, America’s National Oceanic and Atmospheric Administration (NOAA) said there is a 90% chance that the current Niño event will continue through the remainder of the…Read the article
The Bank of England’s Monetary Policy Committee (MPC) are due to meet on Thursday and most economists expect a dovish set of minutes to accompany the announcement of no change in the BoE base rate. Additionally, the minutes will likely emphasise the risks of a persistent undershoot in UK inflation given the continued fall in commodity prices and waning global demand. Despite these risks, the MP…Read the article
We have frequently written about investment grade (IG) credit spreads over the course of the past year. Today I’m going to dissect the IG universe further and take a look at quality spreads, i.e., the additional risk premium investors can earn when switching from one credit rating band into the next lower band.
The chart below shows how the differential in asset swap (ASW) spread between AA and…Read the article
On the 7th of September £38bn worth of UK gilts (4.75% 2015) will mature. The Bank of England (BoE) own just under half the issue, having purchased the bonds through its £375bn quantitative easing (QE) programme. At this point in time, the BoE have indicated that they are committed to keeping the size of the QE program at £375bn. As a result of the 2015 bonds maturing, the bank will therefore h…Read the article
We have seen a fairly swift and deep sell off in both commodities and emerging market equities over the past few months. The recent moves are now feeding through into a more broad-based sell off in risk assets. It appears an opportune time to take stock and see how exposed the various high yield markets are to these trends.
In order to assess any impact, I will firstly consider direct exposure,…Read the article