Category Archives:

inflation

The Fed’s Dots: Treasuries still dear, but no longer massively mispriced

Here’s an update of my favourite long term measure of bond market valuations.  I’ve been updating this chart on the blog over the years, and if you’d bought and sold US Treasury bonds when they diverged significantly from the range implied by the Fed’s long term rate expectations, you would have done OK.

So what does my favourite chart show?  I’ve shown the 10 year US Treasury bond yie…

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RPI reform: result as expected – market reaction not

The background to Wednesday’s announcement

In line with market consensus, on Wednesday the government announced that RPI would be made into CPIH, a lower number. This is not being done for political reasons by the Chancellor, but for statistical ones.

As I have written about previously the national statistician has made clear for years that it does not like RPI, and that it has been frus…

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3 shockers from yesterday’s RPI plans

Index-linked markets were sent into a tailspin yesterday as Chancellor Sajid Javid responded to an earlier letter from the UK Statistics Authority (UKSA), which had set out recommendations for the reform of the RPI. The longest-dated linkers (maturing in 2065 and 2068) fell by more than 9% as breakeven rates plummeted.

Javid’s response contained three big shocks for index-linked markets:

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Diverging fortunes of inflation expectations in the US and Europe

Inflation expectations in the US and Europe have been diverging lately and it comes as no real surprise, of course. After all, annual GDP growth in the US was running at a healthy rate of 2.6% in real terms in Q4 2018. The unemployment rate has fallen below 4%, putting upward pressure on wages, while economic sentiment indicators, such as PMIs, are in firmly expansionary territory. In stark con…

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The war of the indices: which inflation measure to use?

After a lengthy review, Britain’s House of Lords has finally said that the inflation index presently used to price inflation-linked securities, train fares or student loans should be replaced. Instead, the Consumer Price Index (CPI) should become the new benchmark, as it includes more items and has an overall higher credibility. So far, so good – except if you are an investor.

The statistics b…

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Panoramic Weekly: Patient Fed boosts markets

Goldilocks, one of investors’ favourite economic scenarios, seems to have returned in the new year after almost vanishing in 2018: a strong US jobs report and dovish comments from US Federal Reserve (Fed) chair Jerome Powell have reinstated the not-too-hot, not-too-cold environment that combines relatively low rates and good-enough economic growth – supporting risk assets. US High Yield spreads…

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Panoramic Weekly: The US vs. the world

Prices of most global corporate bonds rose over the past five trading days, as above-expectations US economic data fuelled the dollar, took US equities to new heights, and the International Monetary Fund (IMF) confirmed its US growth prospects while cutting those for the Eurozone, Britain and Japan. The risk-on optimism left behind Emerging Markets (EM) sovereign debt, hit by the protracted US-…

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Japan: weakening growth and inflation, and an unpopular government

I was in Tokyo last week, seeing a mix of economists, JGB experts and clients.  I was also awesome at karaoke, dressed as an astronaut.

The last time I was in Japan, over a year ago, I came away thinking there was a decent chance that the Bank of Japan would abandon its zero interest rate policy (ZIRP) as it was damaging banks’ profits, and sending a negative signal to Japanese households and b…

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The UK’s ONS admits an error again. Is ‘The Wedge’ poised to go even higher?

The Financial Times today ran a story that the ONS has admitted errors in its measurement of the telecoms sector. It seems that the ONS has effectively been focussed on output of the telecom sector as based on turnover of the providers, and making a price assumption of the goods and services they sell. On this methodology, the ONS shows prices of telecoms were flat between 2010 and 2015, and tu…

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