This time last year many thought that duration management was going to be the key to success in 2014. Yields were expected to rise as the Fed weaned the market off QE and began to normalise rates. As a result, only the very brave would have been positioned long duration heading into 2014. To be positioned as such would presumably have taken some explaining, particularly when set against what se…
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Duration, duration, duration – a review of bond market returns in 2014
It’s a knockout – why the gilt and currency markets have no love for Carney’s forward guidance
Millwall FC wasn’t the only team to trek up to Nottingham yesterday from London and to come back empty handed (at the hands of the mighty, mighty Forest). Team Carney from the Bank of England also had an unproductive time of it in the East Midlands as the new Governor gave his first speech in the role to the CBI, Chamber of Commerce and the Institute of Directors. Since the publication of the…
Read the articleOld Lady sells her bonds
Back in 2009 the Bank of England (the Old Lady of Threadneedle Street) began buying a portfolio of investment grade bonds to provide funding to UK corporates, to aid liquidity in the corporate bond market and to supplement their QE purchases of gilts. Last Friday this investor sold its last corporate bonds.
This has been a great success from a profit point of view. The attached chart shows the …
Read the articleAnother year over – 2012 returns in fixed income markets
It’s been another massive year for the global economy. Europe saw LTROs, Greece got a haircut, sovereign downgrades and record high unemployment rates. The peripheral European nations attempted to implement austerity measures with limited success. The US re-elected President Obama and the focus quickly shifted to the upcoming fiscal cliff. In the UK, an Olympics induced bounce in growth was the…
Read the articleJim’s outlook for 2013. Eurozone volatility, poor emerging market debt valuations and a sterling collapse. Merry Christmas!
It may not have felt like it, but 2012 has actually been a pretty good year for investors. Bond holders in particular have had a decent 12 months: the government bond bull run has continued and investment grade and high yield corporate debt appears on track to deliver some excellent returns. Major equity markets also look likely to end the year in the black.
These broad-based gains on global st…
Read the articleUK gilts – “Whoah we’re half way there, Whoah livin’ on a prayer…”
Last week the Bank of England announced a further round of quantitative easing of £50bn, bringing the total to £375bn. It is obvious that the MPC thinks that monetary policy is still not sufficiently loose to create the desired economic effect and hence further stimulus is needed.
We have written numerous times on QE. When we started scribing on this novel experiment we focused on why it needed…
Read the articleOffice of National Statistics or Office of National Savings? The Future of the UK’s RPI-CPI wedge
There has at almost all times been a ‘wedge’ between RPI and CPI, given different calculation methodologies (arithmetic mean vs geometric mean, respectively), different items within each, and different weights of these different items. The long term difference has on average seen RPI at 0.5% to 0.8% more than CPI. Recent changes, though, saw the wedge widen in 2007 to more than 2%, and to almos…
Read the articleExploding Myths
According to many market commentators, the UK debt market is looking sick and is at a critical juncture. It is amongst the most unloved government markets in the developed world, which is understandable given the British inability to save in the boom times. Now there is justifiable scepticism that markets will not be able to absorb the forthcoming huge government debt issuance once the Bank of…
Read the articleGilt supply update: back to a world of issuance exceeding buybacks
In last week’s Pre-Budget report, UK Chancellor Alistair Darling announced that gilt issuance for the current financial year would total £225.1bn – a shocking and record figure, although not far off the £220bn that was originally planned in this year’s Budget. But while on one side we’ve had this huge volume of supply from the DMO, we’ve also had the unusual situation of the BoE busily mopping …
What effect will the surge of government bond issuance have on government bond returns?
This is a question that numerous clients and members of the press have asked us so I thought it would be worth writing a brief comment here.
Focusing on the UK, in yesterday’s budget, chancellor Alistair Darling said that gross gilt issuance will be £220bn this financial year, which is easily a record. There is much speculation as to whether the market is able to digest this much issuance. If…
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