Monthly Archives:

August 2008

‘Tier 1’ bank bonds continue to deteriorate

Spreads on Euro denominated ‘Tier 1′ bank bonds hit record wides yesterday, reflecting the growing concern in the market about banks’ ability and willingness to repay investors. ‘Tier 1′ bank bonds are the highest yielding, highest risk bonds in a banks’ capital structure. Essentially, banks issue a spectrum of different ‘tiers’ of debt securities in an attempt to minimise their cost of funding…

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Writedowns, Cuts & Losses

Now that many ‘experts’ have revised their expectations for total bank writedowns significantly upwards, many in excess of one trillion dollars, I thought it may be useful to take a look at those losses that have so far been realised, and how this compares to the amount of capital raised. It’s also interesting to note the correlation with the number of financial market employees that have found…

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Black Swans and Olympic Sprinters

The Freakonomics column of the New York Times has taken its fun approach to economics to produce an analysis of Usain Bolt’s performance in the 200 metres sprint on Wednesday. For anybody who saw it, you won’t be surprised that it was a Black Swan event, way off the Bell Curve in terms of what you might think could be achievable (although Don Bradman’s batting average of 99.94 also puts him in …

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What will higher government borrowing mean? Steeper gilt yield curves as long dated bonds underperform, and crowding out for the private sector

The newspapers over the past week or so have been full of alleged leaks from the government about fiscal help for the poor British consumer. Ideas floated have included a suspension of stamp duty (although HBOS has pointed out that following the 1991/1992 stamp duty holiday, house prices still fell by 8.3% in that latter year, and transactions fell to their lowest level for 34 years), and a £15…

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Citius, Altius, Fortius

UK housing market numbers once again fell short today, which is not surprising given the sparsity of credit and falling mortgage approvals (see our most recent blog comment on mortgage approvalshere – note that our mortgage approvals chart is now predicting year-on-year house price declines of 20% by January 2009).

Today we are going to focus on the speed of decline. During the last housing mar…

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Northern Rock – wishful thinking

It’s now been just over a year since the credit crunch began, and there are many indicators of stress out there – equity market falls, credit spreads widening, and collapsing consumer confidence are all things we’ve focused on over the last year.

Unsurprisingly, the main stress has been in the financial sector, the epicentre of this crisis. This is best typified by the fall of Northern Rock, wh…

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Inflation up, gilts rally ?!

It’s not quite what you might expect. On July 15th, it was announced that UK inflation jumped from 3.3% to 3.8% in June, the highest rate since mid 1992. Expectations had been for 3.6%.But over the course of July, gilts returned +2.7%, making it the strongest month since October 2001. At the beginning of July, there were two 0.25% rate hikes fully priced in to the UK bond market. UK base rates…

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