It’s been a wild ride in May for Italian government bonds, so-called Buoni del Tesoro Poliannuali (BTPs). The yield spread of 10-year BTPs over 10yr German Bunds first rose to c. 250 basis points (bps) after the German Constitutional Court had ruled that the ECB’s Public Sector Purchase Programme (PSPP) was partly unconstitutional. Subsequently, the Italian risk premium collapsed to c. 190 bps…Read the article
It’s been a rough two weeks in bond markets, to say the very least. Risk-off sentiment is reigning supreme. In Europe, looking at my screens this morning, iTraxx Xover—a bellwether of European high yield credit risk—jumped to its widest level since mid-2013, while the yield on 10yr German Bunds dropped to an all-time low below -0.8%.
In previous times of market turmoil, the European Cen…Read the article
Christmas has come early for Europe, with Mario Draghi’s goodbye present to the market of further quantitative easing (“QE”). The ECB has kicked off its latest round of asset purchases. While this will undoubtedly be supportive for European credit, I feel much of the impact is already priced in to the secondary market. With a large book to fill, a significant part of the ECB’s ammunition is…Read the article
No doubt the main thing that Mario Draghi will be remembered for is his famous “whatever it takes”. He told financial markets that the Eurozone was not about to collapse and made it clear that the ECB would save the banks and peripheral sovereign nations of Europe.
More interestingly, however, is to think about how Draghi found himself in the position to be able to QE and to undertake othe…Read the article
All eyes are on central banks these days as major monetary policy decisions have been driving global bond markets. The eagerly awaited September meeting of the Governing Council of the European Central Bank (ECB) has given bond investors much food for thought. In particular, the new round of its asset purchase programme (APP)—announced in true ECB fashion revealing only the bare minimum of de…Read the article
In his distinctively dovish Sintra speech two weeks ago Mario Draghi left the door wide open for further loosening of monetary policy in the Euro area. All options seem to be on the table to bolster European inflation numbers, including a new round of quantitative easing. Draghi’s remark about the ECB’s Asset Purchase Programme (APP) still having considerable headroom fuelled hopes amongst man…Read the article
This week the 10-year German bund yield hit a new record low of -0.33% in the wake of Draghi’s Sintra speech which had echoes of his 2012 “whatever it takes” declaration. Why so dovish? Manufacturing data from the eurozone has been universally bad lately, and inflation expectations are collapsing. The core inflation rate is now just 0.8% and the ECB’s 2% target looks an impossible goal. The mar…Read the article
German government bonds have gone from strength to strength in recent times; much like the German team at the World Cup – I wish! But is the latest Bund rally sustainable? I think not.
Let’s start with the bull case. In a recent blog, I described how Bunds had provided an efficient hedge against surging political uncertainty in Italy, due to the negative correlation between yields on German and…Read the article
Back in 2017, the economic outlook was increasingly rosy for the Eurozone. After years of ultra-loose monetary policy, a synchronised global recovery was in train. The Eurozone economy expanded apace, regularly surprising to the upside, unemployment continued to fall, the banking system had partially recapitalised and funding costs for corporates and sovereigns alike remained low on any measure…Read the article
Credit risk is real. It’s easy to forget this platitude in times when both investment grade and high yield credit markets go from strength to strength. Even one of Europe’s foremost credit investors – the European Central Bank (ECB) – has recently been reminded that there is indeed the risk of permanent loss of capital when buying corporate bonds.
Every week the ECB updates the consolidated lis…Read the article