Monthly Archives:

August 2010

Four handles? Fork handles? Four candles?

In all financial and commodity markets the big figure (the first part of the price) is referred to as the handle. This allows verbally quicker and more accurate trading (see this classic Two Ronnies sketch) as the handle does not need to be mentioned in every transaction. In the bond markets the handle from a yield perspective is the first big figure, so when the yield on a security is 4.5%, th…

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A letter from Ireland to M&G’s Bond Vigilantes

Dear Bond Vigilantes,

The small nation of Ireland has received more than its fair share of press since the credit crunch started three years ago. The financial crisis has not been kind to the Irish economy, with the collapse of the Irish property bubble having a profound impact on citizen’s net wealth and psyche. In fact, Ireland was the first country in the EU to officially enter recession. As…

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Beautiful Game, Ugly Investment

Travelling back from Sunday’s draw between Liverpool & Arsenal (it was never a sending off), I noted Liverpool Football Club had again made the business pages for all of the wrong reasons (see here).

The current battle between RBS, the principal creditor to LFC, and its owners Tom Hicks and George Gillett continues to highlight the dangers of utilising leverage to buyout companies in certain in…

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Why are TIPS yields negative?

Last week a client asked us why US TIPS (inflation linked government bond) yields have been negative for much of this year (see chart), and we’re not sure we gave a very good answer.  This weekend, to distract myself from the monotony of doing laps of Richmond Park on my bike, I came up with these 7 reasons why an investor would lock in a return guaranteed to be lower than inflation over the ma…

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Bernanke calls for a 4% inflation target

Well sort of.  It hasn’t got a lot of attention in the bond markets, but this week both Jon Hilsenrath in the WSJ, and subsequently Paul Krugman in the NYT have revisited Ben Bernanke’s paper Japanese Monetary Policy: A Case in Self-Induced Paralysis.  Bernanke wrote this in 1999 as an academic at Princeton University.  In it he calls on the Bank of Japan to set a “fairly high” inflation target…

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Happy birthday to the credit crunch

We first started writing about the credit crunch 3 years ago (see August 2007). Since then, short-term interest rates in the USA, Europe and the UK have collapsed to near zero. Ten year government bond yields across the respective economies have fallen by around two percent.  Whilst the fall in interest rates and yields has been a great present for government bond investors, the global economy …

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UK housing market flashing amber

The July RICS survey continued the worrying trend of weaker UK data that has been in evidence since the preliminary UK Q2 GDP data release on July 23rd.  It seems that the economic slowdown that has been evident in the US in the past few months is no longer contained to the US alone. The survey showed that UK surveyors are on balance seeing house price falls rather than rises, the first time th…

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When Money Dies – Competition

We’ve just got hold of some copies of the newly reprinted book about the Weimar Republic’s hyper-inflation, When Money Dies by Adam Ferguson.  In 1923 the German mark was trading at 4,200,000,000,000 to the dollar, and the population was impoverished and reduced to barter to survive.  Only the creation of a rival, asset-backed currency brought the hyper-inflation to an end.  The book is an anal…

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Turning Japanese I Think We’re Turning Japanese I Really Think So (follow up)

There is only one explanation for why 2 year US Treasury yields broke below 0.5% today (an all time low), or why 10 year government bond yields in Germany and the US are currently 2.5% and 2.9% respectively.  Or, for that matter, why German 30 year bunds are now at just 3.2%.  The bond markets clearly think there is a very real and increasing risk that the developed countries are going to end u…

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