Category Archives:

rates and yields

The hot money has flown south to Australia for the winter, but will it fly back in the summer?

On Friday we had a Dumb and Dumber moment in the office when a colleague for a few seconds thought that Australia had lost its AAA rating.   The error was quickly realised (it was Austria that was downgraded) and Australia kept its AAA rating across the board that it has had with Moody’s and S&P since 2002 and 2003 respectively (although Fitch only upgraded Australia’s foreign currency rating t…

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The US is headed for recession – if 63 years of economic data are any guide to the future

Think the US is out of the woods now that congress has come to an agreement on the debt ceiling? Not according to this chart from Rich Yamarone, an economist at Bloomberg. It’s called the “2 percent rule”. When US GDP falls below 2%, it usually means the world’s largest economy is headed for a recession.

Last week, we received confirmation that US GDP was just 1.6% in Q2 2011. Combined with ye…

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All UK rate hike bets are off

Pound sterling is the weakest currency in the world today and we’ve seen a pretty big gilt rally, with 10 year gilt yields rallying 7 basis points to 3.1% at the time of writing, the lowest yield in seven months. The trigger was the minutes from the last Monetary Policy Committee meeting, where the crucial sentences were ‘current weakness of demand growth was likely to persist for longer than p…

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So we’re all being financially repressed in the developed world – but does that really mean poor bond returns? (+ competition time)

I attended an interesting lecture last year by Carmen Reinhart (hosted by RBC) where she predicted an era of negative real returns for investors in developed market sovereign bonds.  This was due to what she termed ‘financial repression’, as the authorities in richer countries struggle with the huge debt burden.  Financial repression is loosely taken to be things such as greater financial regul…

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MPC Minutes – Rate hike becoming ever more likely

This morning, with the release of the MPC’s latest minutes, we discovered that a further member of the committee voted for a rate hike at the last meeting. Spencer Dale voted for an increase in the base rate of 25 basis points. That now leaves the votes: 3 to tighten, 5 to stay on hold and 1 to further loosen monetary policy (Adam Posen is still calling for more QE). The general tone of the min…

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Funny goings on in the Chinese banking sector

The interbank lending rates (Shibor) in China have gone ballistic in the last three days, with the 1 week Shanghai Interbank rate soaring from 2.6% on Monday to 7.3% today.  The worrying move has been put down to a combination of Chinese New Year (there is traditionally a bit of a movement around Chinese New Year but not this much) and the most recent increase in Chinese bank Reserve Requiremen…

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Here’s why Spain’s in trouble

The convention in the market is to estimate a country’s degree of distress by looking at the yield spread over a ‘risk free’ rate.  So in the case of eurozone countries, people tend to look at the spread over German government bonds.

While this spread is clearly important, it’s more relevant to look at the absolute yield level if you’re trying to figure out whether a country’s debt is sustainab…

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US monetary policy – “drinking poison to quench a thirst” says the Chinese ratings agency

“Drinking poison to quench a thirst” – that’s Dagong Credit, the Chinese credit rating agency’s, view of the Fed’s monetary policy decisions of late. The recent money printing initiatives (QE2) and Dagong’s perception that the US is less intent on repaying its debts were their motivation for downgrading the US from AA to A+ last week – somewhat below the AAA ratings that S&P and Moody’s have fo…

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Happy birthday to the credit crunch

We first started writing about the credit crunch 3 years ago (see August 2007). Since then, short-term interest rates in the USA, Europe and the UK have collapsed to near zero. Ten year government bond yields across the respective economies have fallen by around two percent.  Whilst the fall in interest rates and yields has been a great present for government bond investors, the global economy …

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Fixed interest markets performance review year to date – some interesting results

We have now passed the halfway mark of 2010 and we thought it would be interesting to put together some figures to show how various bond indices have performed year-to-date (as at July 13). BofA Merrill Lynch provide an excellent download service via Bloomberg which has allowed us to extract the data in the following table. Interestingly, in this perceived world of risk on/risk off, performance…

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