Monthly Archives:

September 2011

Unwinding the euro

From previous blogs (see here and here) you can see that we are not a big supporter of the single currency from an economic point of view. However we recognise the authorities’ political and economic desires to maintain it despite its economic inefficiencies. This does not stop us thinking about policymaker options. If the single currency is to be unwound what is the least damaging way to do it…

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10 reasons why EFSF is not the Holy Grail

We’ve had numerous concerns with EFSF ever since it was announced last year. Here’s our top 10, in no particular order;

(1) The considerable risk of one or more of the AAA rated guarantors being downgraded, which would threaten EFSF’s AAA rating.

(2) The fact that the EFSF’s current size and form aren’t sufficient to bail out Spain and Italy.

(3) A larger EFSF, which solves point (2), could…

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M&G Fixed Interest team visits New York – Operation Twist, The Fed and corporate bond markets

It’s been two and half years since our last visit to New York. As you can see in this latest video, the past few tumultuous years in the markets have not been kind to Jim, Richard and Stefan. Earlier this week they visited New York, meeting with a number of economists and strategists, where talk was dominated by developments in Europe. In this latest video update, you can hear the Team’s views …

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If this is part 2 of the Great Recession, what were the 10 recent policy errors that got us here?

When it was all academic, I enjoyed reading about the causes of the Wall Street Crash, the Great Depression and the German hyper-inflation.  Policy errors abounded. The UK going back on to the Gold Standard in the middle of the crisis and sending the economy down in to a deflationary spiral.  Andrew Mellon, US Treasury Secretary, saying “liquidate labor, liquidate stocks, liquidate farmers, liq…

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Twisted thinking

The Fed, like many central banks, has moved on from conventional to unconventional policy tools to attempt to stimulate the flagging US economy. This was manifested yesterday by the introduction of “Operation Twist”.

Operation twist involves the Fed selling $400 billion of US treasuries with maturities of 3 years or less to buy $400 billion of US treasuries with maturities between 6 and 30 year…

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The new Big Short – EM debt, not so safe

A couple of months ago I argued that the implied risk premium on emerging market (EM) debt suggested that the market was treating EM debt as a safe haven, and the market was therefore smoking crack (see here).  The price action in EM hard currency since then suggests that the EM rally was indeed being artificially stimulated, and 30 year Brazil paper has since sold off almost 100 basis points v…

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The Euro-friendly left is gaining momentum in Germany

When I listen to my colleagues or read the English papers, the general consensus is that the Germans don’t like the Euro and don’t want to fund Greece’s bail-outs anymore. Whilst you can hardly argue against this overall impression of German public opinion, the feed-through from that to the German political landscape hasn’t necessarily reflected that popular view. In Finland and the Netherlands…

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The outlook for fixed income after the summer of discontent

What a summer we have had in bond markets! The US and French bank downgrade, limited policy flexibility, aftermath of the Japan earthquake, rising commodity prices and sovereign and banking concerns already had markets on edge. A further deterioration in leading economic indicators has proved to be the straw that broke the camel’s back, leading to a sustained bout of risk aversion causing volat…

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A guided tour of the European High Yield market

As my esteemed colleague Stefan pointed out earlier this year, we are beginning to see some attractive value emerging in the European high yield market. I thought it would be worth giving a quick update on what is being priced in and also peel back the lid on the market and take a peek inside at some of the individual high yield issuers lurking within.

Let’s start with the overall market. As of…

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Government bond returns and “back door” QE policy

Journalists and financial commentators have been kept very busy this year. Market participants and investors have clamoured for information on debt ceilings, credit ratings, and restructurings. 2011 looks like a year that will go down in history as one of the most volatile on record.

With that in mind, I thought it might be useful to focus on the actual returns within government bond markets o…

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