Monthly Archives:

August 2011

The US and Eurozone economies are probably now shrinking

Yesterday’s Philly Fed number was an absolute shocker. The Philadelphia Fed’s general economic index is something we watch closely because it is a good indicator of the Institute for Supply Management indices, and the ISM surveys are arguably the most important monthly US economic data releases.

We wrote a comment back in January 2008 about the importance of the Philly Fed data release, which b…

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Buffett, taxation and the collapse in the average male worker’s standard of living

On Monday Warren Buffett stated “our leaders have asked for ‘shared sacrifice’”.  But when they did the asking, they spared me….whilst most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.” (click here for the NY Times op-ed).

We’d just been looking at the chart below, so the timing of his commentary was good.  Whilst mean US male weekly earnings …

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Sell off in high yield markets provides a buying opportunity

The price action in the high yield market has been brutal over the last few weeks. A very respectable year-to-date return of 3.8% as at end of June currently stands at -1.3% (according to the Merrill Lynch European Currency HY Index as at 15/08/11). That’s a significant re-pricing of risk. To put it in context, look at the iTraxx Europe Xover Index (for an explanation, see here). The most liqui…

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Oil prices and the impact on inflation linked bonds

With a significant fall in the oil price (-28% since the end of April), inflation linked bonds are underperforming their nominal counterparts. The biggest impact though is in the US market, where TIPS yields have risen, especially at the shorter maturities. This chart shows that whilst short dated index linked gilt yields have edged up in the last couple of weeks, the yield on the 2012 maturi…

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What is risk off?

Recent selling of risk assets into traditional haven government bonds has taken their yields back near their all time lows. Will people continue to buy them in a risk off trade? We are almost certainly nearer the beginning than the end of a western world sovereign debt crisis. That means quite clearly that Gilts, Bunds and Treasuries are not the ‘risk free’ investments they once were. In relati…

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The economy continues to lead credit

Two months ago I questioned whether the decoupling between credit spreads and economic fundamentals could continue for much longer. I felt at the time that at some stage the weakening economic data would start to drag credit spreads wider, at least relative to government bonds. I also asked whether we might enter an environment in which high quality investment grade credit could see a flight to…

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The US is headed for recession – if 63 years of economic data are any guide to the future

Think the US is out of the woods now that congress has come to an agreement on the debt ceiling? Not according to this chart from Rich Yamarone, an economist at Bloomberg. It’s called the “2 percent rule”. When US GDP falls below 2%, it usually means the world’s largest economy is headed for a recession.

Last week, we received confirmation that US GDP was just 1.6% in Q2 2011. Combined with ye…

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@bondvigilantes: theTwitter feed is live!

We’ve finally activated our long dormant Twitter account, and you can now follow us.

Click here to follow @bondvigilantes.

To start with we’ll simply be tweeting links to new articles on this blog, but once we’ve got the hang of it we will use Twitter to link to articles we think are interesting, retweet stuff by people we follow ourselves, and, on exciting days (budgets, elections, economic me…

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