For over 3 years, the Czech National Bank (CNB) has maintained the Czech Koruna (CZK) exchange rate close to 27 CZK to the Euro (EUR), essentially using its currency – as opposed to interest rates – as the policy tool to achieve its inflation target. Earlier this month however, the CNB advised that this strategy would be exited “around the middle of 2017”. Though the timing remains ambiguous (t…Read the article
The votes are in and it’s pretty unanimous. Despite Mario Draghi’s best efforts to persuade otherwise, the market is clear that today’s announcements are tantamount to tapering. Frankly anything less than an extension of Euro 80bn per month, irrespective of the duration, was likely to have been taken as such, with scant evidence of the inflation target being achieved during the forecast horizon…Read the article
Last week, the Federal Open Market Committee (FOMC) decided that despite low unemployment and a sustained increase in breakeven inflation expectations since September, it was appropriate to maintain the Fed Funds rate between 0.25-0.50%. In trying to understand this action, and why the Fed is happy to wait until December to hike rates, a number of theories have been suggested by the financial c…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
Last year we blogged with our key takeaways from the IMF and World Bank meetings and this year is no different. Claudia Calich and I tag-teamed between the Washington based events, participating in the many wide ranging discussions that took place, so we’re doing the same here. Claudia will be providing the emerging market coverage, while I share some insights from developed markets, alongside …Read the article
Now that the Bank of England has commenced purchases of gilts and committed to a programme of corporate bond buybacks, alongside similar measures being presently undertaken by the ECB, it is worth taking a step back and thinking about valuations in sterling fixed income.
Let’s take a brief look at what has happened so far in 2016 in government bonds. The ultra-long conventional gilt has returne…Read the article
We have written about quantitative easing (QE) many times over the years, yet there remains more to be said: the great QE experiment is not yet over. Given the result of the EU referendum, speculation is rife as to whether the Bank of England will embark on another round of QE to stimulate the UK economy; arguably making this a good time to debate the efficacy of such strategies.
It’s safe to s…Read the article
Despite keeping interest rates on hold at the 4th July meeting, the minutes of the Monetary Policy Committee indicated that “most members expect an easing in August” (even long-time hawk Martin Weale has shifted to a dovish stance). Subsequently, markets are pricing in a staggering 98.3% probability of a rate cut at the next meeting in 8 days’ time. With UK data expected to deteriorate over the…Read the article
Transport yourself back to July 26, 2012. Borrowing costs for the “peripheral” European nations are uncomfortably high. Ireland, Portugal and Greece were in the process of applying for bailouts, while the Spanish banking system was dangerously close to falling over. It wasn’t a question of when an EU member would leave the single currency bloc, but who? Step forward ECB President Mario Draghi, …Read the article
I attended a conference last week where European Central Bank (ECB) bashing was approaching fever pitch. The crux of the argument goes a little something like this:
“The ECB have lost the plot. Monetary policy has become impotent. The ECB is at the lower bound and the law of diminishing returns results only in an ever greater misallocation of resources, punishing savers and rewarding speculatio…Read the article