Monthly Archives:

August 2013

Jobless claims and Fed policy

Today’s release of jobless claims shows that the US economy is continuing its healthy response to the stimulus provided by the Fed. Momentum in the US labour force remains in a positive direction.

The very long term chart below shows today’s headline number of 331,000 to be relatively low historically. However, this is actually understating the current strength of the labour market.

In order t…

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It’s a knockout – why the gilt and currency markets have no love for Carney’s forward guidance

Millwall FC wasn’t the only team to trek up to Nottingham yesterday from London and to come back empty handed (at the hands of the mighty, mighty Forest).  Team Carney from the Bank of England also had an unproductive time of it in the East Midlands as the new Governor gave his first speech in the role to the CBI, Chamber of Commerce and the Institute of Directors.  Since the publication of the…

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A roadmap for Europe after the German elections

August is usually a dull month in German politics. It’s holiday season, and national parliamentary politics takes a break at the same time. However, this year German politicians don’t have time to put their feet up. The period of parliamentary recess marks the peak of the electoral campaign in Germany before the general elections take place on 22 September. Many people seem to expect that not o…

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Lower for longer – the path to Fed tightening

The disclosure of the latest Federal Open Market Committee (FOMC) meeting minutes last night has pushed the US bond market to new lows for the year, further extending the current bear market in world government bonds. Looking at what the Fed is doing is nothing new. Back in the day when I first started, we had dedicated teams of Fed watchers, trying to work out its next move, as rate changes we…

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Tier 1 capital: too much faith in a Q&A, or why didn’t you call me?

It turns out that market participants may have put too much faith in the European Banking Authority (EBA). The EBA’s answer to a submitted question indicated that non-called bank Tier 1 instruments – or at least those similar to one described by the questioner – cannot simply be reclassified as Tier 2 capital after the first call date. The EBA’s answer to this specific question – which some wro…

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Interest rate duration or defaults – which is the lesser of two evils?

So far this year returns for the high yield market seem solid if unspectacular; 2.9% for the global index, 4.5% for Europe and 3.4% for the US. However, these overall numbers mask some interesting gyrations within the markets. It’s been a mixed year for government bonds but a solid year for credit spreads. Indeed, recent moves in the sovereign bond markets continue to focus investors’ minds on …

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Mr 7 percent – exploring unemployment in the UK

The governor at the Bank of England stepped forward last week with guidance about its future plans and conditions regarding the tightening of monetary policy. Ben gave his views on the announcement here last week, but what I am going to focus on is the 7 percent unemployment rate ‘knockout’.

Firstly, why has the Bank of England decided to use the unemployment rate as an indicator of inflationar…

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Monster Munch update – a victory for bondvigilantes.com

One of our most popular posts of all time was written back in 2011. The subject was not the US losing its AAA rating, the impact of the default of Lehman Brothers or any other weighty matter of great economic import, but rather a quick look at how packets of Monster Munch were getting smaller over time and the associated inflationary impact.

Hence my surprise when I went into a shop last weeken…

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In search of satisfaction – our analysis of the BoE press conference

Listening to the Bank of England Quarterly Inflation Report press conference – the first with Mark Carney steering the ship – a song immediately sprung to mind. The song was written by a former student of the London School of Economics, Sir Michael “Mick” Jagger with his colleague Keith Richards in 1965. There is no better way to analyse the current thinking of the Bank of England than through …

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Panoramic: The Power of Duration

The early summer surge in bond yields will have focused the minds of many investors on the allocation of assets in their portfolios, particularly their fixed income holdings.

The largest risk to a domestic currency fixed income portfolio is duration. When investors discuss duration they are more often than not referring to a bond or portfolio’s sensitivity to changes in interest rates. Corporat…

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