The German federal election in September still seems far away. However, for the first time in years, it appears possible that Angela Merkel could actually lose the election. Martin Schulz, Chancellor candidate and chairman of the Social Democratic Party, is having some early signs of success in the polls and is gaining momentum. As a result, investors in European (and UK ) debt might want to re…Read the article
Turning back the clock to the first week of 2016, fears of a Chinese slowdown and the Federal Reserve beginning to normalise rates hit stock markets hard. By Valentine’s Day bond yields had fallen to – what was then – all-time lows. But we hadn’t seen anything yet. Ongoing ECB QE, Brexit, UK QE, novel Japanese monetary policy, president-elect Trump and ECB tapering. In a year of political and …Read the article
Guest contributor – Jean-Paul Jaegers, CFA, CQF (Senior Investment Strategist, Prudential Portfolio Management Group)
Recently Jim Leaviss and I travelled to Tokyo to discuss local economic developments and Bank of Japan (BoJ) policy with economists and analysts based in Tokyo.
There was generally broad agreement that the potential path for Japanese government bond yields (JGBs) is asymmetric. …Read the article
In our latest Panoramic Outlook, Jim Leaviss has a look at the forces that resulted in a tumultuous year for establishment politics, the ECB’s quantitative easing dilemma and the prospects for emerging markets in 2017. For the first time since the financial crisis, it appears that bond yields will come under sustained pressure as central banks gradually remove monetary stimulus. The impacts of …Read the article
With the market currently pricing in an 84% chance of a US interest rate hike in December it appears likely that there is some pressure for bond yields to move higher on a medium term view. This is on top of the re-pricing that we have already seen in risk-free assets like US Treasuries over the course of the past four months. High yield assets are not immune from the laws of bond maths, with l…Read the article
The residential mortgage backed securities (RMBS) market has had a good run of late, so is the sector still good value and is there room for it to rally further?
The short answer: Yes.
The longer answer: There are a number of factors that should prove supportive for RMBS going forward, a few of which are discussed below.
The Big Short has been available on Netflix for a couple of m…Read the article
The financial world is a scary place. Debt, disinflation and deteriorating growth have plagued investors over the past year, plunging bond yields into negative territory in a number of countries. Perhaps most frighteningly, it is now eight years since the financial crisis and central banks in the developed world continue to employ an ultra-easy monetary policy stance. With government bond marke…Read the article
For fixed income fund managers it was once the case that if you understood the evolution of the relative sizes of the various cohorts of the young, the working, and the retired in a population, you could predict bond returns. Lots of workers relative to the “unproductive” young or elderly meant low wage pressures, lots of demand for savings assets such as bonds, and lower government borrowing….Read the article
When investors buy or sell financial assets they try to analyse likely outcomes. This basically revolves around three main issues.
- What is the capital upside?
- What is the capital downside?
- What income is earned from the security?
The dramatic fall in bond yields means that this traditional approach to investing will have to be examined.
One way to do this is to model real world outcomes. …Read the article
In order to assess value in credit markets, bond investors usually make some assumption about the future path of corporate default rates. This assumption generally stems from macroeconomic forecasts (strong/weak growth = low/high defaults rates) or sector specific events (like oil price movements). Following this, it is possible to get an indication of whether investors are being over- or under…Read the article