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The M&G YouGov Inflation Expectations Survey – Q1 2015

Economic policy hawks love inflation expectation surveys. As do bond fund managers, who like to keep a close eye on inflation to ensure that fixed income returns aren’t being eroded away. Provided that inflation expectations are close to target, we tend to argue expectations are well anchored and thus central bankers can rest easy. However, the monetary policy actions undertaken by many central…

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Featured Post

The improvement in the US jobs market is quantitatively huge – but qualitatively mediocre

The condition of the US labour market is one of the hot topics in the ongoing “will they / won’t they” Fed rate hiking debate, and as Bloomberg’s Economic Surprises screen shows, this sector is the only area of the economy outperforming expectations of late.

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Labour market indicators continue to impress, with employment indicators strong on many measures. Initial Jobless Claims have dropped to …

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Islamic-finance

The Middle-East – an expensive safe haven for bond investors

I am just back from a fascinating investor trip to the Middle-East, where I spent a week meeting with corporate and government bond issuers as well as market participants in the United Arab Emirates (UAE). We spoke at length about Islamic finance, the oil price impact and geopolitical risk.

When I asked the question of the oil price impact on the region to corporate issuers and government offic…

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war loan pic

Goodbye to War Loan: 1917 to 2015.

Today, the War Loan issued in 1917 to help finance Britain in World War 1 is finally redeemed. We’ve written about it repeatedly over the years as it has always fascinated us. Was its coupon cut in 1932 a form of default from the UK government? Does George Osborne’s claim that it is being redeemed this year as a result of a tight grip on the public finances ring true?

To commemorate this most i…

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Video: Jim & Mike go to NY to ask the big question. Will the Fed hike in 2015?

Have you seen the film The Day After Tomorrow? The one where U.N. officials foolishly ignore climate scientist Jack Hall (Dennis Quaid) and a super-storm plunges New York into a new Ice Age? Well it was colder than that last week when Mike and I made a research visit over there. With wind-chill it was a billion below. I was only able to survive by laughing at Mike forgetting to wear a hat and g…

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Operation normalise

The Fed has basically used three major themes in response to the financial crisis from a monetary point of view:

  1. Lower short term rates
  2. Quantitative easing
  3. Operation twist – an attempt to flatten the yield curve

The Fed has communicated that it now expects the first move in normalising rates as the economy recovers will be to increase short term rates. Personally I think there are other alter…

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2015-01AD blog

Europe needs a German fiscal stimulus package but won’t get it

The German government can theoretically borrow at negative yields if it were to issue short maturity debt today. Longer maturity debt is also yielding a record low amount. Could the collapse in yields be a blessing for Germany and Europe? Two economists at the International Monetary Fund (IMF) seem to think so. Indeed, the German government’s narrow-minded pursuit of the “black zero” (a balance…

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How steep is the USD IG credit spread curve?

Is now the time to buy long-dated USD IG corporate bonds?

Credit curves are usually upwards sloping; as you’d expect, investors require more of a credit risk term premium for lending for a long time than for a short time, all else being equal. As the charts below show however, the steepness of USD IG non-financial credit curves has become rather extreme in 2014. At year end, the asset swap (ASW) spread differential between c. 25 years and c. 2 years w…

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Emerging market fixed income – 2014 performance

Emerging Market debt: 2014 returns post-mortem and 2015 outlook

2014 was quite an eventful year for Emerging market (EM) fixed income. After a period of strong performance which lasted all the way to September, markets corrected significantly in the latter part of the year as the escalation of the Russia crisis and the plunging oil prices triggered the most significant drawdown since the “taper tantrum” of June 2013. All in all, emerging markets still poste…

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EM Asia corporate bonds have outperformed in recent sell-off

After the December rout, where is the value in EM corporates?

It’s this time of the year when banks and other investment research providers have released their outlooks for the coming year. For the EM corporate bond asset class, Asia was forecast to be the best performer in 2015, with most top picks being in India and China.

Most 2015 outlooks were released in late November or early December, when EM USD corporate bonds were boasting a solid 6.1% total re…

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