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ECB

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Why doesn’t the ECB just buy oil?

It’s pretty clear that the pressure is on the European Central Bank (ECB) to come up with some form of policy response at their next Governing Council meeting in March. Take, for example, the 5-year, 5-year EUR inflation swap rate (i.e., the swap market’s estimate of where 5-year inflation rates might be in five years’ time), which has taken a nose dive to 1.5% (see chart below). This is remark…

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15.11.30 ME blog 1

The ECB may lower rates, but the Swiss shouldn’t follow suit

Expectations are high that European Central Bank (ECB) president Mario Draghi will announce additional easing measures at the next monetary policy meeting on Thursday this week. If the ECB decides to provide further stimulus via extended (or expanded) QE and/or lowers its negative deposit rate further, the Swiss National Bank (SNB) has some thinking to do. I am probably not the only Swiss perso…

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Tweet inflation survey March 15

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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Coming to a bond market near you: “A Brave New World: Zero Yield Corporate Bonds”

Picture the scene: a meeting room, 40 floors up, plate glass floor-to-ceiling windows with views of central London in the background. At the polished mahogany table sits Hans Schmidt, the CFO of a major consumer global goods company. In walks Chad “Ace” Jefferson III, the latest in a long line of investment bankers assigned to cover his company. Behind Chad follows an entourage of five impeccab…

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Demurrage – a tale of gold, cash and mercenaries

Historically I’ve struggled with the concept of gold as an investment. Presumably if you bought gold for this purpose you would want to store it somewhere safe and insure it. However, investors in gold should account for the fact that there is a cost to sleeping well at night. Vaults and insurance don’t come for free, and that cost can be thought of as a negative yield or the demurrage of gold….

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The M&G YouGov Inflation Expectations Survey – Q4 2014

Today we launch the next edition of M&G YouGov Inflation Expectations Survey which polled over 8,200 consumers across the UK, Europe and Asia.

The Q4 report reveals that consumers’ short-term inflation expectations continue to moderate across most regions, although they remain well above current inflation levels. Long-term expectations remain resilient despite this year’s low inflation environm…

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€1tn increase required in ECB balance sheet to return to mid-2012 levels

Who’s the biggest winner if ECB buys corporates? The French

With the European Central Bank (ECB) purchasing €1.7bn of covered bonds last week, the Eurozone’s “QE-lite” programme has well and truly begun. Although the focus to date has been on covered and asset backed bonds, an article from Reuters last week spurred the market, due to a rumour that the ECB would soon be considering an extension to include secondary market corporate bond purchases. Althou…

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Drifting apart: The decoupling of USD and EUR credit spreads

The decoupling of European and U.S. yields has been one of the key bond market themes in 2014 and therefore a much-discussed topic in our blog and elsewhere. Over the past two and a half months, however, a second type of transatlantic decoupling has emerged, this time with regards to credit spreads.

Let’s first have a look at the relative year-to-date (YTD) performance of USD and EUR investment…

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Exceptional times

Interest rates – both short and long term – are at record lows in Europe. The driving force behind this is the belief that both employment and inflation will be lower for longer. This is something that concerns the ECB and Drahgi’s Jackson Hole speech implies further easing ahead. These appear to be exceptional times.

The story of how we got here is pretty simple: a global banking collapse in 2…

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The M&G YouGov Inflation Expectations Survey – Q2 2014

Today we are launching the next wave of the M&G YouGov Inflation Expectations Survey which aims to assess consumer expectations of inflation over the short and medium term.

With interest rates at multi century lows, central banks continue to inject large amounts of monetary stimulus into the global economy. Recent inflation rates in the US, UK and Germany have proved central to the current mark…

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