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European credit: divergence between the bond and credit derivatives markets

There is a general belief in markets that the economic cycle follows the US – and therefore that you can’t have a recession in a developed market without a US recession first.  Yes, the US economy is the biggest out there, and with general market sentiment being that we are late cycle it is understandable that everyone’s focus is on the US data and its flattening yield curve.

But what has reall…

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In a QE adjusted world, bond indices look very different

Investing in public securities, whether equity or debt, is driven by two primary desires; firstly a need to save for the future, and secondly the requirement to see these savings grow. This results in a need for investors to pursue low risk and high growth investments.  In order to understand these risks, assets get categorised based on their potential and historic risk characteristics. Broadly…

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CPI wHat?

In the UK, as of next month the official measure of consumer prices will become CPIH, with the H standing for housing.  As at today, the only difference between CPI and CPIH is the inclusion of owner-occupied housing in the latter, on a rental equivalence basis (“how much would it cost to rent the home I own?”, a similar measure to the Owners’ Equivalent Rent component of US CPI), which has a w…

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Another year over – 2012 returns in fixed income markets

It’s been another massive year for the global economy. Europe saw LTROs, Greece got a haircut, sovereign downgrades and record high unemployment rates. The peripheral European nations attempted to implement austerity measures with limited success. The US re-elected President Obama and the focus quickly shifted to the upcoming fiscal cliff. In the UK, an Olympics induced bounce in growth was the…

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Baltic Dry Index indicating grim growth outlook and bond rally

The Baltic Dry Index, a measure of commodity shipping costs, is often used as an indicator of global demand, and it has a pretty good relationship with government bond markets too as we’ve discussed previously. The index has received much publicity over the past few years since it very accurately flagged the carnage of Q4 2008.  One of the index’s attractions is that unlike financial markets, …

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Baltic Dry Index suggests weakness ahead for government bonds

The Baltic Dry Index is a measure of the price of shipping dry goods such as coal, iron ore or grain, and is commonly used as an indicator of global demand.  The beauty of this index is that unlike financial markets, it’s not subject to speculation. We’ve mentioned the Baltic Dry Index once before on this blog, when Jim highlighted at the beginning of September 2008 that continued new lows in t…

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US economy: hard landing or soft landing?

A stream of poor economic data and some horrendous writedowns from the big banks have meant that risky assets have been walloped. The iTraxx crossover has shot out from 340 to 470 since the start of the year, and most of the world’s equity markets are down between 10 and 15%.

The recent release that I’d like to focus on is last week’s Philly Fed number (or the Federal Reserve Bank of Philadelph…

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Leveraged loan market shrugs aside global pick up in volatility

Over the past few weeks, equity markets have seen falls of around 6%, and while the high yield market correction hasn’t been as severe, the iTraxx index still widened from a spread of 179/180 on February 26th to a high of 235/238 on February 28th, before clawing back some of the losses. During these turbulent times, the secondary prices traded in the European leveraged loan market remained larg… Read the article

iTraxx Index- A brief explanation

In response to a recent request and the ever increasing spotlight that the iTraxx indices find themselves under I thought I’d write a quick note to try and shed some light. The indices first came into being in Europe back in June 2004 when it was felt that the bond markets would benefit from the creation of a liquid index reflecting the ever growing credit default swap market (CDS) . The index …

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