Monthly Archives:

October 2010

Beware the doom and gloom merchants on euro unemployment

The euro area unemployment rate rose to 10.1% today, a level not seen since July 1998. But does the market place too much emphasis on this number?

Of course it is always important to keep a close eye on unemployment rates. Strong consumer demand is less likely to be inflationary if the unemployment rate is well above the non-accelerating inflation rate of unemployment (NAIRU) rather than close …

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Mind Your Step

Mervyn King has regularly referred to the great moderation as the NICE era: Non-Inflationary Consistently Expansionary period. Obviously, those days are well gone as we are over three years into the credit crunch, a vast array of stimulus measures have been applied, and their effects are waning (see mike’s blog). So, if we are no longer in the NICE era, where are we? Well, growth and inflation …

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The currency vigilantes – putting theory into practice

Richard has written over the last couple of weeks about how QE is turning the world topsy turvy with potentially the higher inflation economies experiencing the lowest bond yields, how central banks and their printing presses are killing the bond vigilantes, and how the currency vigilantes are rising up in the bond vigilantes’ place.


Well the currency vigilantes have certainly been pummelling …

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See you on the other side

Now that the new budget has been announced by George Osborne and spending review disseminated, the coalition is lauding its merits and the opposition is deflecting responsibility for the deficit and exposing flaws in the cuts.  Today’s budget and public sector reforms will see billions cut from welfare spending, Whitehall budgets reduced, the retirement age raised, quangos culled and a permanen…

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An emerging market country issues lots of century bonds – reason to worry?

Last week BBB rated Mexico issued a 100 year bond denominated in US dollars.  It was originally supposed to be a $500m issue, but as is typical in any EM bond issue at the moment, the book soared to almost $3bn so the government decided to take advantage and make it a $1bn issue.  It was issued at a price of 94.3, which meant it had a yield to maturity of 6.1%, or 2.35% more than a 30 year US T…

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The currency vigilantes

Last week we explored a topsy turvy world that quantitative easing (QE) could cause, with the lowest bond yields potentially occurring in the highest inflation economies. We noted that this would be the death of the bond vigilantes, as they are overwhelmed in their attempts to force higher bond yields by the ammunition of the printing press being put to work in government debt.

This begs the qu…

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A Nobel aim – to find the right match and reduce the poison of long term unemployment

Hi everyone, I’m the new guy on board. I started at M&G last week but the rest of the team is already working really hard to find me a ridiculous nickname.

Yesterday morning, I saw a familiar face in the news. My macroeconomics professor at LSE, Christopher Pissarides, had just won the Nobel Prize in economic sciences (jointly with Dale Mortensen and Peter Diamond). On top of being an exception…

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Topsy Turvy

Traditionally the main concern for a bond investor is inflation. It reduces the real returns of a bond, hence prompting higher long term interest rates, and causes the authorities to increase short term interest rates as a policy response.  The increases in rates cause the current value of bonds to fall. Inflation is bad for bonds, full stop. 

Quantitative easing is now threatening to turn that…

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