Monthly Archives:

April 2009

New issuance hits record levels

We commented in November that growing levels of new issuance suggested that there were cracks in the ice in credit markets.  This trend has rapidly accelerated.  In the first quarter of this year, there was over €115bn of new issuance from corporates, almost twice as big as the previous record from 2001 and only slightly less than the €133bn figure for the whole of 2008.

Why has there been so m…

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Horrific European economic data released

Spain is already in deflation, and this morning it released some horrible unemployment numbers.  Spanish unemployment soared to 17.4% in Q1, from 13.9% in Q4.  This is the first time unemployment has risen above 17% since 1998, and is further evidence of the alarming deterioration in the European economy. 

Also this morning it was announced that UK GDP was -1.9% in Q1, taking the year on year …

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What effect will the surge of government bond issuance have on government bond returns?

This is a question that numerous clients and members of the press have asked us so I thought it would be worth writing a brief comment here. 

Focusing on the UK, in yesterday’s budget, chancellor Alistair Darling said that gross gilt issuance will be £220bn this financial year, which is easily a record. There is much speculation as to whether the market is able to digest this much issuance.  If…

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Monetary Forbearance, and the threat of a double dip financial crisis

With first quarter results out of Wells Fargo, JP Morgan and Citigroup this week in the US, and Barclays over here, you might be forgiven for starting to think that the financial crisis is well along the bumpy transition to the next phase, ie a global ‘real economy’ crisis. To some extent, I think we’d have to agree. We have come a long way from the week that Lehman went, when it felt like AIG …

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US in deflation for first time since 1955

Some interesting numbers came out of the US yesterday.  US CPI was -0.1% in March, below expectations of +0.1%.  This means that US CPI was -0.4% versus a year earlier, the first time there’s been a negative reading in over 50 years (see chart).

(It’s important to stress that I’m quoting the broad measure of CPI, which is including food and energy costs – the Federal Reserve, unlike the ECB and…

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ECB – let’s get ready to rumble!

It’s all getting rather interesting at the ECB. Facing a rapidly deteriorating economy and the prospect of deflation, the governing council are at odds on the best way to deal with the crisis.

Fighting out of the blue corner, the German duo of Axel Webber and Jurgen Stark argue that cutting rates further and/or embarking on quantitative easing (QE) in a US/UK style would have little positive im…

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George Osborne, UK Shadow Chancellor, to change inflation target?

In a speech this morning, the Shadow Chancellor George Osborne hinted that he might change the UK’s inflation target if the Tories form the next Government (and it’s difficult to see how they can muck it up from here).  Currently the Bank of England must set monetary policy to keep CPI inflation within the band 1% to 3%, and must write a letter to the Chancellor in the event of "missing".  Wit…

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What is the European Central Bank waiting for?

The ECB cut rates from 1.5% to 1.25% last week, taking the main rate to the lowest level since the ECB took control of monetary policy in 1999.  Markets had been expecting a rate cut to 1%, and rightly so.

Everything seems to be deteriorating in Europe, almost without exception.  The euro is close to the strongest it has ever been versus a basket of foreign currencies, and this is killing expor…

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Frankly A Step Backwards (for the US)?

Yesterday the Financial Accounting Standards Board (FASB) has voted to ‘relax’ fair-value or mark-to-market accounting rules.  This is, in our view, a big step in the wrong direction. We believe that it has done this under huge pressure from politicians, lawmakers, and, particularly, financial institutions. In essence, the reversal means that companies will no longer have to value their assets …

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Stage 1 of QE over? Now the gilt purchases might start to get traction

 It’s still early days in the UK’s QE process, so the 7 data points we have from the gilt buyback programme to date are insufficient to draw too many conclusions from.  However, this chart does seem to show that participation in the reverse auctions has been declining.  The first 3 auctions had an average cover of 5.3 times – so for every gilt that the Bank bought back, there was over 5 times …

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