Monthly Archives:

January 2010

Exploding Myths

According to many market commentators, the UK debt market is looking sick and is at a critical juncture. It is amongst the most unloved government markets in the developed world, which is understandable given the British inability to save in the boom times.  Now there is justifiable scepticism that markets will not be able to absorb the forthcoming huge government debt issuance once the Bank of…

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Volcker Rules, OK for Bank Bondholders?

Guest contributorJeff Spencer (Financial Institutions Credit Analyst, M&G Credit Analysis team)

In an attempt to reduce risk-taking at financial institutions, yesterday President Obama announced a proposal to bar banks from engaging in proprietary trading activity that was unrelated to customer business. He also advocated that banks be stopped from owning or investing in hedge funds or priva…

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UK money supply shrinks by most ever – QuitE a Dilemma

Today we have seen the preliminary release of M4 money supply (so-called ‘ broad money’), and it could potentially be a very important piece of economic data. December saw a 1.1% drop in the money supply, the largest monthly fall since records began in 1982. Expectations were for a 1% increase. Year-on-year, expectations were for an 8.9% increase, but this came in at a meagre 6.4%. M4 money sup…

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UK inflation soars, but beware of the hysteria

Expectations had been for a big jump going into this morning’s release of December UK inflation statistics, however expectations still weren’t high enough.  The year-on-year CPI inflation rate surged from +1.9% to +2.9%, eclipsing the average forecast of 2.6% (economic forecasts varied from as low as +1.9% to +2.8%).  This marked the biggest jump in UK CPI since April 1991.

Why the big jump?  W…

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Taxing time for banks – lessons that still need to be learned

There has been a lot of anguish and complaints from bankers about Obama’s tax on banks, and complaining why they have been singled out. Some of this is the usual self interested financial posturing (they are bankers!), some of it is in response to unfair political criticism, typified by last week’s focused grilling of Lloyd Blankfein, a successful CEO of a successful bank (Goldman Sachs). Ignor…

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The Ultimate Carry Trade ?

Last week’s BWIC list (bids wanted in competition) from the Bank of England gave further evidence, if it was needed, that the demand for Sterling corporate bonds remains very strong. The table below, kindly provided by HSBC, shows the bonds that were sold and that most traded through where the market was pricing them last Friday.

The BOE took the opportunity to sell a selection of the corporate…

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The big story for 2010: sovereign debt worries?

Happy New Year.

Over the past couple of weeks, the cost of buying protection to insure against a default by the UK government has risen to exceed the cost of insuring a basket of European investment grade companies.  The chart shows that 5 year Credit Default Swaps (CDS) for the UK sovereign are currently at 83bps per year, compared with 72 bps for the investment grade companies, which are all …

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