Monthly Archives:

December 2017

Cross currency basis – what is it? And what are the implications?

Towards the end of this year, a December spike in the cross currency basis for major currencies against the dollar grabbed the market’s attention. But what is cross currency basis (“the basis”)?

Consider a European company taking a one year loan from its domestic local bank to fund its US operations abroad. In order to hedge the currency risk, the company enters into a one year EUR/USD currenc…

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Floating rate versus fixed rate high yield bonds. What are the breakeven scenarios for the next 12 months?

Short term US dollar interest rates continue their march higher. 3-Month USD LIBOR recently hit 1.61%, fuelled by the Fed’s 25 basis point hike on December 13th, a level last seen in late 2008. With further rate hikes on the horizon in the US and a potentially more hawkish European Central Bank, is 2018 the year when floating rate high yield meaningfully outperforms its fixed rate cousin?

The s…

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Golaccio! – Inter Milan issues European Junk Bond

Yesterday we saw Inter Milan issue the first football related high yield bond since we saw Manchester United tap the market back in January 2010. Putting aside the natural tribalism of 2 of my esteemed colleagues (both Italian, both ardent AC Milan supporters), we decided not to invest in the €300m 4.875% 2022 bond.

In terms of fundamentals, legal claim, and relative value, the bond stacks up f…

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2018: The end of the (QE) affair. M&G’s economic and bond market outlook

In our latest Panoramic Outlook, Jim Leaviss assesses the forces behind the robust and broad-based nature of global economic growth in recent months and the prospects for this broadly rosy outlook continuing into 2018. He looks at where we are within the current global deleveraging cycle, and asks how high this means that rates can go. In Jim’s view, the quality of investment grade credit has s…

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The M&G Bond Vigilantes Christmas Quiz 2017

Here is the 11th annual Christmas Quiz.  20 questions, and the closing date for entries is midday on Friday 22nd December.  Please email your answers to us at bondteam@bondvigilantes.co.uk.  The winner will get glory, and in lieu of a golden trophy, M&G has donated £500 to Cancer Research UK, through CASCAID.  CASCAID is the UK asset management industry’s effort to raise £2 million for this bri…

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What do global government bond indices look like in a QE adjusted world?

Richard recently wrote about how government bond indices should be adjusted to account for quantitative easing (QE) purchases, thereby better reflecting the actual availability of investments in the market. A key argument indicated that given the absence of this adjustment, European government indices are incorrectly skewed towards more highly rated sovereigns, even though their issuance is not…

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Posted under QE

BVTV: Fund Manager Stefan Isaacs on 2017, 2018, and the prospects for Liverpool in the UEFA Champions League

This week Stefan Isaacs joins me to review the year that was. Sitting on a bond desk in the City of London, it appeared to be a solid but pretty dull year for fixed income markets. Fortunately, we had the drama of Brexit negotiations and Donald Trump to keep us occupied over the course of the year.

I also question Stefan about his 2018 outlook for bond markets, and whether Liverpool can actuall…

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A pretty good indicator of USD/EUR exchange rate movements

After four calendar years of price appreciation, it looks like the US dollar will end 2017 deeply in negative territory. The dollar has fallen by almost 12% this year versus the euro and around 8% on a trade weighted basis. More surprisingly, the sharp depreciation of the dollar against the euro has occurred in a period when central bank policy has diverged, resulting in the yield differential …

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