Monthly Archives:

April 2007

Scottish independence – would I end up with Scottish gilts? And would I want `em?

The pollsters reckon that the Scottish National Party will become the single biggest party in Scotland following the elections later this week. This has understandably led to thoughts that a subsequent referendum could result in a majority in favour of leaving the 300 year union between England and Scotland, and have Scotland becoming an independent state within the EU. This led me to think tha…

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US growth slumps while inflation jumps

Provisional figures just out show that the US economy grew at an annualised rate of 1.3% in Q1, the slowest pace in four years, as construction fell at an annual rate of 17%. Q1 GDP was way below expectations, which had been for an annualised growth rate of 1.8%.

At the same time it was announced that the Federal Reserve’s preferred measure of inflation rose at an annual rate of 2.2%, up from 1…

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Default rate is the lowest in 10 years, but the only way is up

Moody’s monthly default report shows that the global speculative grade default rate fell to the lowest level since April 1997. March’s figure was 1.41%, down from 1.58% in February, which means that just 1.41% of all high yield issuers defaulted in the 12 months to the end of March. These incredibly low default statistics have been made possible by a combination of strong corporate earnings and…

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International housing market looks jittery

There was further evidence of a slowdown in the US housing market yesterday, as sub-prime mortgage woes contributed to existing home sales falling 8.4% in March, the largest monthly decline since records began in 1999 and significantly below expectations of a 4.3% decline.

The US is not the only country with a wobbly housing market – Spanish house price inflation slowed to an annual rate of 7.1…

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Man wins £25,000 by betting on himself to reach 100 – a lesson for the bond market

You may have read today about the story of Alec Holden, who ten years ago bet £100 on himself that he’d live to 100. William Hill offered him odds of 250-1, and he’s now celebrating a £25,000 win. It seems that old age hasn’t dimmed Mr Holden’s wit – the secret is apparently not to worry about anything, do as little work as possible and go on lots of holidays (and in recent months he’s been ke…

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Why have medium dated and long dated gilt yields fallen, despite the nasty inflation figures?

You may be surprised to know that although short dated gilt yields have moved higher this week, 10 year gilt yields are in fact lower than when the market opened on Monday, despite Tuesday’s announcement of a horrific set of UK inflation numbers. Why is this?

The reason is that medium dated gilts are very closely correlated to global government bond yields. In fact the 10-year gilt yield is act…

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Letter from Guernsey – food glorious food

Just back from a day trip to Guernsey to visit clients (and now realising that I have a pocket full of non-legal tender coins to dispose of somehow – perhaps I should melt them down for their nickel content, given the 150% rally in that metal’s price over the last year). The Bank had just written its “Dear Gordon” letter after the 3.1% CPI/4.8% RPI print, and inflation was the topic of the trip… Read the article

Inflation breaches the Government’s target – Mervyn King writes letter to explain why

For the first time since it was granted independence in 1997, the Bank of England’s Monetary Policy Committee has had to write an open letter to the Chancellor explaining why inflation has breached the government’s target. CPI inflation rose by 3.1% year-on-year in March, more than 1% away from the 2% level. This was up from 2.8% in February. The drivers of this unexpected increase were food, n… Read the article

SLM Corp – A Sign of Things to Come?

SLM Corporation, commonly known as Sallie Mae, announced yesterday that it is to be sold to a group of investors led by two private equity houses for $25 billion. The two private equity players will own 50.2% of the business with Bank of America & JP Morgan Chase splitting the balance. The two banks have also agreed to put a whopping $200 billion in backup financing in place over the next five … Read the article

After yet more strong housing market data, how much longer can we go without a rate hike?

My last housing market note at the end of March discussed how strong mortgage approvals are an excellent predictor of future house price movements. If mortgage approvals are strong, then many people are taking out mortgages. If people are taking out mortgages, then they are looking to buy a house, and if demand for housing increases, house prices do too.

Mortgage approvals data is a good proxy …

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