Monthly Archives:

March 2012

High Yield in the Post Lehman Era

We recently published an in-depth note on the high yield market . In it we consider some of the issues facing investors in the era of negative real interest rates and financial repression and how high yield as an asset class fits into the current paradigm.

Our main conclusions are:

  • Low interest rates and ageing demographics are enticing investors to high income generating assets.
  • High yield fi…

Read the article

UK economic recovery worse than Great Depression, and no sign of improving

It was announced this morning that the UK economy grew just +0.5% in 2011, a downward revision from +0.7% previously announced.  As the chart below from Citi illustrates, the UK economy has stalled.  UK real GDP is 4.1% below its pre recession peak, which makes this ‘recovery’ worse than the Great Depression.

The UK’s experience of the past few years is also considerably worse than Japan’s expe…

Read the article

Central banks’ poor forecasting records and why the Fed may hike rates before late 2014

Central banking has evolved substantially in recent decades. Part of this evolution has involved a move towards greater transparency around a central bank’s forecasts and operations. The reason for this shift is because it is believed by many economists that by having a central bank communicate its objectives and forecasts, economic agents like consumers and businesses will make better informed…

Read the article

Markets start to think about inflation again

Over the last few weeks we have witnessed a meaningful bounce in inflation breakevens in the UK, Europe and the US. When breakevens are rising, it is a signal that the fixed income market is anticipating higher inflation than has been priced in. It also means that index linked bonds are outperforming conventional bonds. In the UK, the linker gilt of 2016 has outperformed the conventional gilt b…

Read the article

Is bond market price action looking a bit like 1993-94? And the timing of fairytale 100 year bond issues.

1993 was a golden year for US Treasury investors, with 10 year yields falling from 6.7% at the start of the year to 5.3% by its end.  It felt like nothing could go wrong – and inflation had even fallen throughout the year from 3.3% to 2.7%.  Yet on 4th February 1994, the Fed hiked rates by 0.25%.  And they hiked again in March, by 0.5% in May and August, and a further 0.25% in November.  The an…

Read the article

Central Bank Regime Change: who cares about 2% inflation targets anymore? A chart.

For those clients who received our Panoramic fixed interest newsletter in December (the latest edition is out now by the way, with a detailed analysis of the global high yield market), you will have seen that I talked about Central Bank Regime Change as one of the key issues for fixed interest investors in the coming years.  What I meant by Central Bank Regime Change is this: the days of Centra…

Read the article

The Bank: Inside the Bank of England: the 10 competition winners are…

The answer was the Bank of England’s Inflation Report cost £4 when it was first published in 1993, and now costs £3, deflation of 25%.

Congratulations to the ten winners picked randomly:

  1. Tim Cockram – Chetwood Wealth Management
  2. Simon Bird  – Brewin  Dolphin
  3. Alex Brandreth – Brown Shipley
  4. Robert Harper – Brewin Dolphin
  5. Ali Treharne –  SFP Plymouth
  6. Mark Dobson – Charles Stanley
  7. R Knight – from A…

Read the article

Greece. Private sector involvement indeed.

The news of the Greek default hardly came as a massive surprise, having been years in the making (see Stefan’s blog from 2010)  but we have certainly learned a few things, such as the privileged position of the ECB with regard to their holdings of Greek bonds (as I mentioned in a recent blog). Last week’s ECB press conference provided Draghi an opportunity to explain why the institution he head…

Read the article

Refreshing the credit markets: Heineken finally receives a credit rating

We rarely go into individual corporate rating actions on the blog, but bear with me. Today Heineken was rated Baa1, BBB+ by Moody’s Investor Service and Standard & Poor’s respectively.  Not exciting, and a non-contentious rating. So why is it of interest ?

Well, for the previous 25 years of my career this large corporate has not had a credit rating, and has decided at last to join the vast majo…

Read the article

The Bank: Inside the Bank of England by Dan Conaghan. Thoughts and a competition.

I’ve just finished reading Dan Conaghan’s newly published book The Bank: Inside the Bank of England.  It’s very good – and essential reading for all bond geeks.  We met with Dan a couple of weeks ago (he’s coming in for a lunch with a few clients next week) to talk through some of the themes in the book.  First of all it’s a big surprise just how little has been written about the Bank of Englan…

Read the article