Monthly Archives:

January 2011

Funny goings on in the Chinese banking sector

The interbank lending rates (Shibor) in China have gone ballistic in the last three days, with the 1 week Shanghai Interbank rate soaring from 2.6% on Monday to 7.3% today.  The worrying move has been put down to a combination of Chinese New Year (there is traditionally a bit of a movement around Chinese New Year but not this much) and the most recent increase in Chinese bank Reserve Requiremen…

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UK inflation jumps most in one month since 1993 – cue mass hysteria

A 1% jump in UK CPI in December meant that the year on year inflation rate in the UK soared from 3.3% to 3.7% year on year, once again beating consensus expectations of 3.4%.  No doubt we’ll have the newspapers tomorrow full of talk of a return to the 1970s, and no doubt we’ll also have various MPC members continuing to come out over the next few weeks and months explaining that this inflation …

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Emerging market inflation – a big risk to global growth

The reasons behind the ugly scenes in Tunisia are down to a combination of political and economic factors, but at least part of the discontent stems from rising food and energy prices.  Public unrest in Tunisia has spread to Jordan, where thousands were protesting against the government over the weekend, and demonstrations are also spreading to Egypt (10 year US$ bonds are down 4% today, and th…

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It’s not 1993-1994 in the government bond markets. Unemployment is still way too high to provoke a Fed hike. But the Bank of England might be on the brink of a policy error…


Government bonds have been selling off over the past month. Since mid October the 10 year gilt yield has risen from 2.85% to 3.63%, the 10 year bund from 2.25% to 3.00%, and the 10 year US Treasury from 2.40% to 3.40%.  The damage has been even greater in peripheral Europe – Spanish 10 year yields are up by nearly 150 bps over that same period.  Part of this reflects the return to a “risk on&#…

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Baltic Dry Index indicating grim growth outlook and bond rally


The Baltic Dry Index, a measure of commodity shipping costs, is often used as an indicator of global demand, and it has a pretty good relationship with government bond markets too as we’ve discussed previously. The index has received much publicity over the past few years since it very accurately flagged the carnage of Q4 2008.  One of the index’s attractions is that unlike financial markets, …

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Titanic Issuance: Is This The Year Of The Covered Bond?

We have been musing for a while now the impact of new financial regulations on bank funding and how banks will structure their balance sheets going forward. I speculated a couple of months ago that banks would likely begin to fund themselves by issuing a combination of covered bonds and contingent capital. My sense is that the demand for contingent convertible capital in the market is currently…

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