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Armageddon fatigue: reasons to be optimistic in the longer term

Watching the news flow on the global economy is dispiriting. Ask an economist what springs to mind when they hear the word “Europe”. They will probably reply with thoughts about negative interest rates, deflation and debt concerns. It isn’t much better when you bring up the economic outlook for the US (“the upcoming election is a concern”), Japan (“the BoJ is at the limits of monetary policy”),…

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Changes in corporate bond market liquidity and the opportunities they present

One of the prevailing features of the last few years has been the increasing prominence of discussions regarding market liquidity and the seemingly downward trajectory it has taken across fixed income markets. This had led many market participants to question the resulting implications for market stability and volatility.

It makes sense then to try and understand the driving factors behind thes…

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The book taking France by storm. Économie du Bien Commun – a review.

During my free time in August I read the book that has taken the French political and economic landscape by storm (no, it’s not  “Capital” by Thomas Piketty). Nobel Prize winning economist, Jean Tirole, has written a book entitled “Économie du Bien Commun” (or “economy for the common good”). The book is written in plain language and attempts to reach a large audience, including readers with ve…

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Either the demographic bond models are broken, or yields are headed to 10%.

For fixed income fund managers it was once the case that if you understood the evolution of the relative sizes of the various cohorts of the young, the working, and the retired in a population, you could predict bond returns.  Lots of workers relative to the “unproductive” young or elderly meant low wage pressures, lots of demand for savings assets such as bonds, and lower government borrowing….

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With zero yields, the advantages of bonds over cash are gone

When investors buy or sell financial assets they try to analyse likely outcomes. This basically revolves around three main issues.

  1. What is the capital upside?
  1. What is the capital downside?
  1. What income is earned from the security?

The dramatic fall in bond yields means that this traditional approach to investing will have to be examined.

One way to do this is to model real world outcomes. …

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Demographics and bond yields: Is the relationship broken forever?

Demographic trends – once a guiding light for bond investors

There’s a great attraction in using demographics – i.e. trends in population growth, and changes to the composition of populations between the young and old – as an economic forecasting tool. This is because future demographic trends are largely baked in the cake, allowing us to make solid predictions. Like the famous basketball makin…

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Mind the gap: what record low recovery rates mean for high yield investors

In order to assess value in credit markets, bond investors usually make some assumption about the future path of corporate default rates. This assumption generally stems from macroeconomic forecasts (strong/weak growth = low/high defaults rates) or sector specific events (like oil price movements). Following this, it is possible to get an indication of whether investors are being over- or under…

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The periphery-core financing gap has been gradually closing

SME financing in Europe – not out of the woods yet

In 2013 I blogged about how financing conditions had tightened aggressively for small and medium sized corporates (SMEs) in peripheral Europe. Three years later, we’ve seen the introduction of targeted longer-term refinancing operations, QE, negative deposit rates and other efforts towards creating a financially united, cohesive, European banking union. Now feels like a good time to revisit thi…

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The BoE and ECB render the US bond market the only game in town

Now that the Bank of England has commenced purchases of gilts and committed to a programme of corporate bond buybacks, alongside similar measures being presently undertaken by the ECB, it is worth taking a step back and thinking about valuations in sterling fixed income.

Let’s take a brief look at what has happened so far in 2016 in government bonds. The ultra-long conventional gilt has returne…

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Will the Bank of England’s latest banking sector policies promote lending to the real economy?

Guest contributor – Mark Robinson (Financial Institutions Analyst, M&G Fixed Income Team)

The Bank of England recently announced two new measures focussed on the banking sector, which are primarily designed to improve monetary policy transmission from banks to households and corporates and, indirectly, are probably intended to stimulate loan growth. In this blog post, I’ll examine these actions…

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