Category Archives:

monetary policy

The Israeli Shekel: Flying under the radar

Though the recent US Treasury report did not name any country as a currency manipulator (see more details on this in Mario’s blog), the monitoring list centres on larger economies that meet the following criteria:

  1. The country has a significant bilateral trade surplus with the United States defined as more than USD 20 billion.
  2. The country has a current account surplus of at least 3% of GDP and …

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Canada’s increasingly divergent rate path

Yields on Canadian sovereign bonds have been dragged higher in recent months, with the yield on the 10-year bond recently reaching 2 year highs. This sell-off appears to reflect the US reflation narrative, rather than the economic fundamentals of the Canadian economy.

The market currently thinks the Bank of Canada will remain on hold throughout 2017, pricing in only one rate hike – a 20 basis …

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Mortgages and monetary policy in the US and UK

The cost of new mortgage borrowing and payments on outstanding household debt can have a large impact on the rate of growth of an economy. For this reason, central bankers are interested in the transmission mechanism of monetary policy. It has been shown that interest rates can have a stronger influence on an economy where there are a high proportion of variable rather than fixed-rate mortgages…

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Poor old ECB. Damned if it does, damned if it doesn’t.

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…

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Does the US government bond market sell off mark the return of the bond vigilantes?

The bond market was intimidating during the Clinton years, and has started as it means to go on for Trump’s term.  As we celebrate this website’s 10th anniversary, it proves fitting that the bond market reminds us why we named the blog as we did.

The result of the US election was a surprise given the polls, but the exceptionally short-lived “risk-off” reaction in bond markets has been just as …

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Unconventional interest rate tightening underway in the US economy

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…

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Will the Bank of England’s latest banking sector policies promote lending to the real economy?

Guest contributor – Mark Robinson (Financial Institutions Analyst, M&G Fixed Income Team)

The Bank of England recently announced two new measures focussed on the banking sector, which are primarily designed to improve monetary policy transmission from banks to households and corporates and, indirectly, are probably intended to stimulate loan growth. In this blog post, I’ll examine these actions…

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Pre-exit, Brexit, what was it? Why the BoE should delay a change in monetary policy.

Post the Brexit referendum we are in an economic purgatory. The brexiteers are looking forward to a democratic led revitalisation of the economy, while the bremainers fear that the “little England” mentality will leave us isolated and depressed. Most people have an opinion, and the economic opinion that matters the most is that of the Bank of England (BoE). The market has absorbed the news of B…

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Should the Bank of England start buying sterling corporate bonds again?

When the Bank of England’s Monetary Policy Committee meets next week, the market expects that they will cut rates, especially now that even outgoing hawk, Martin Weale (who has been at the Bank for 71 meetings so far, and voted to hike 12 times, and to hold 59 times) says that he will support a reduction.  A resumption of the Funding for Lending (FLS) scheme is also a possibility (many economis…

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The Bank of England could be about to unveil a bumper monetary policy package

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…

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