Monthly Archives:

June 2007

Structured credit – the ratings agencies fight back

Rating agencies have come under fire recently. A number of perceived gaffs haven’t helped the agencies’ credibility (we covered Moody’s changes to its bank rating methodology on this blog), but the biggest concern at present is regarding structured credit.

Some investors have always treated ratings agencies with a degree of scepticism, arguing that there must be a conflict of interest when comp…

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French VAT hike rumoured; could add 1% to French inflation

We’re hearing rumours that the new French government is about to announce a big rise in the VAT rate, perhaps by 5% (Germany hiked its VAT rate by 3% at the start of this year). This would add a full percent to French inflation. Short dated French inflation linked bonds have rallied relative to nominal bonds as a result. Apart from the impact on price inflation, higher consumption taxes will da…

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5 reasons why the bond market is selling off

1. Technical analysis
You may well disapprove of the theory that lines drawn with a ruler and a pencil on a chart of bond yields can help predict the future, but like it or not, enough people in the bond market have been looking at the 5% level in 10 year US Treasuries to make it a big deal. This marked the support trend line of the bond bull market that had gone back to 1987. The market has b…

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China crisis for US bonds?

Tim Bond, head of Global Asset Allocation at Barclays Capital, wrote a well-timed piece panning bond markets in the FT on Thursday last week. He argues that bond yields are much lower, and yield curves much flatter than would normally be expected given the current economic environment, and estimates that long dated bond yields are around 1% below equilibrium value. This has occurred because of … Read the article

UCITSIII wider powers, CDS and CDOs – a question from a client

Sent by anonymous, 4 June 2007:

As an investment IFA I can sympathise with the question dated 23.05.07 – in relation to asset allocation and the resultant bond exposure so many stochastic modelling tools tell us to have. We have been underweight in Fixed Interest in general as an asset class for about 1 year now and going overweight in UK commercial property funds. This I am now taking back dow…

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Energy: inflation and extinction, or a future golden age for mankind? I’m cheering up.

Being a gloomy bond fund manager, I like nothing more than to read a book predicting economic and social collapse. Thus I’ve just finished reading The Last Oil Shock – a Survival Guide to the Imminent Extinction of Petroleum Man, by David Strahan. There’s not much new in this, but it does contain a useful recap of Peak Oil theory. As a quick summary, Dr M. King Hubbert used statistical sampling…

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