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Defaults in European Retailers and US Energy on the rise

2019 has been a pleasant ride so far for high yield investors. Over the past 9 months the global high yield market has delivered a total return of 10.9% and an excess return of 6.4%, in part thanks to the U-turn of major central banks. Despite all the good news, things have occasionally gone wrong.

Recent events have reminded high yield investors that investing doesn’t come without risk. Thomas…

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Ukrainian bonds have delivered one of the highest returns in EM this year

Can Ukraine continue outperforming?

Ukrainian fixed income assets have performed better than
expected this year, and delivered one of the highest returns in the emerging
market universe. Since the beginning of 2019, Ukraine’s five-year USD bond
spread has tightened by about 370bp, while the JP Morgan EMBI saw spread
compression of just 70bp year to date. Political novice Volodymyr Zelenskiy and
his Servant of the People (SP) par…

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After FTSE Russell index delay, what’s next for Chinese government bonds?

Yesterday evening, FTSE Russell announced that
China Government Bonds (CGBs) would not be added to the widely followed FTSE
World Government Bond Index, but remain on the watch list for inclusion until
further review. This came as a surprise for most investors: Bloomberg Barclays
and JP Morgan both recently added CGBs and bank policy bonds to their index
suites. In challenging times for the Ch…

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The ECB resumes corporate bond purchases — here is what you have to know

All eyes are on central banks these days as major
monetary policy decisions have been driving global bond markets. The eagerly
awaited September meeting of the Governing Council of the European Central Bank
(ECB) has given bond investors much food for thought. In particular, the new
round of its asset purchase programme (APP)—announced in true ECB fashion revealing
only the bare minimum of det…

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Will the Bank of England join the loose money bandwagon?

As the year of the 325th anniversary of the Bank of England’s foundation, and as the month of one of the Bank’s more important rate-setting decisions since 2008, September provides a congruous occasion on which to reflect on the history of the BoE and consider what the future holds for it. Founded in 1694 as a private bank to the government, it was in 1998 that the BoE was granted independence…

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3 shockers from yesterday’s RPI plans

Index-linked markets were sent into a tailspin yesterday as Chancellor Sajid Javid responded to an earlier letter from the UK Statistics Authority (UKSA), which had set out recommendations for the reform of the RPI. The longest-dated linkers (maturing in 2065 and 2068) fell by more than 9% as breakeven rates plummeted.

Javid’s response contained three big shocks for index-linked markets:

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Is China really a currency manipulator?

Last night, the US Treasury designated China as a currency manipulator. This has occurred a few times in the past, most recently in 1994. Though China has been on the Treasury’s watch list for some time (alongside several other countries), given that the most recent Treasury report published in May did not name China a manipulator, it begs the question, what has changed between then and now?

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Why the fresh US sanctions on Russia are unlikely to cause a meltdown

Late on Friday night, the US announced a fresh round of sanctions against Russia, effective from the 26th August. These restrictions represent the 2nd round of sanctions in line with the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act). The announced sanctions include US opposition to the financial or technical assistance to Russia provided by international…

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The moon landing, the Fed and a “pro-bubble”

Economists usually think of “bubbles” as being negative for economies and societies. Think of the US housing bubble and its role in the 2008 Global Financial Crisis as a great example. Defining a bubble is tricky, and often its causes are difficult to explain even with the benefit of hindsight. In their paper “Bubbles in Society – the Example of the Apollo Program” Gisler & Sornette say that…

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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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