Monthly Archives:

December 2010

Thoughts on the uselessness of economics, and some views on austerity

Imagine if you had nine of the most skilled doctors in the country examining a patient, and you had such a range of views that one doctor demanded emergency surgery and an immediate series of organ transplants, and at the other end another doctor insisted that the patient is in such robust health that he must be discharged immediately and return his wheelchair and medicines on the way out.  You…

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Here’s why Spain’s in trouble

The convention in the market is to estimate a country’s degree of distress by looking at the yield spread over a ‘risk free’ rate.  So in the case of eurozone countries, people tend to look at the spread over German government bonds.

While this spread is clearly important, it’s more relevant to look at the absolute yield level if you’re trying to figure out whether a country’s debt is sustainab…

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Foreign investors still love gilts

After December’s big sell-off in US Treasuries on the back of fears about the US’s creditworthiness, and the surprise at yesterday’s record monthly budget deficit in the UK, there’s been a lot of talk about a bond market “buyers’ strike”.  In particular the western bond markets’ reliance on Asian central banks has made many nervous that a change in risk appetite there could result in strings of…

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The 2010 Bond Vigilantes Christmas Quiz – the answers

Thanks again for another bumper crop of entries for the quiz.  The answers are below, and the winners are:

First Prize (Amazon voucher for £103.20): Cecilia Liao from C. Hoare & Co
Second Prize (The Big Short by Michael Lewis): Marton Hübler from Fidelity Investments
Third Prize (as above): Nick Tudball from BNP Paribas

M&G staff member prize: Luke Coha

1. Who overcomes his fear of flying and a…

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The relationship between financial and non-financial credit – decoupling?

A renewed focus on European bank balance sheets, their sovereign exposures, fears of creditor bail ins and a general risk apathy saw subordinated financials spreads move significantly wider through November. I’ve charted the ratio of spreads, comparing the Merrill Lynch EMU Financial Corporate Index, Sub Type (EBSU) against the EMU Corporates, Industrial, BBB rated (EJ40) below. Whilst sub fina…

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Europe – It’s The Final Countdown

There were echoes of August 2008 for a few hours last week.  The yield spread on 10 year Spanish, Belgian and Italian government bonds over German government bonds spiked to a euro era record, while the cost of insuring Portuguese and Irish government bonds against default also hit a record high.  Greece has already become a zombie sovereign, and is being kept alive with a cash drip from the EU…

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