Tag Archives:

inflation

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Why do people buy negative yielding bonds?

Guest contributor – Craig Moran (Fund Manager, M&G Multi-Asset Team)

The following blog was first posted on M&G’s Multi-Asset Team Blog, www.episodeblog.com. M&G’s Equities Team also regularly post their views at www.equitiesforum.com.

These are extraordinary times in financial markets. On a daily basis we are being bombarded with news headlines of political turmoil, market gyrations, forecasts…

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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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The new wedge in US inflation linked bonds

The new wedge in US inflation linked bonds

There has long been a well-known ‘wedge’ in the UK index linked bond market, since the bonds pay RPI and the Bank of England targets CPI. The wedge is the difference between these two price indices, and over the long term is thought to be approximately 1%. So over the long term, and with all sorts of caveats, RPI will be around 1% higher than CPI. The reasons for the wedge are essentially that …

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Inflation expectations at lowest level in last three years – M&G YouGov Inflation Expectations Survey Q4 2015

We recently blogged about the marked effect the collapse in commodity prices, particularly oil and energy, have had on global inflation rates across the world. Headline inflation rates in major western economies have been in, or have flirted with, deflation throughout the year in spite of ongoing economic growth and a steady recovery in labour markets.

An interesting issue is whether this, seem…

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The El Niño effect

Need motivation for your New Year diet? M&G’s cake index shows that cake is getting more expensive

I blogged in 2014 with good news for cake lovers; falling soft commodity prices indicated that the cost of baking cakes was getting cheaper.  Unfortunately (and in contrast to hard commodity prices, notably oil recently hitting new post global financial crisis lows), the final quarter of 2015 depicted a reversal in trend with soft commodity prices on the rise.

In September we discussed the pote…

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15.10.28 blog RW1

The real data – the Phillips curve is alive and well

One of the first rules of economics is that the equilibrium market price is generated by relative supply and demand. Limited supply or excess demand should result in an increase in price. One of the questions that has arisen in the post financial crisis world is why have wages not increased despite unemployment heading towards historically low levels? Given the improvement in data such as headl…

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What has the recent fall in oil prices got to do with inflation over the next three decades?

What has the recent fall in oil prices got to do with inflation over the next three decades? Plus robots, charity, Morrissey.

First of all thanks to Business Insider.  Every now and then we come into work to find hundreds of new Twitter followers have joined us overnight – this week it was thanks to BI listing us second in its round up of finance Tweeters.  It’s a great list and pretty much everyone on it is worth a follow – I’d also recommend following Business Insider’s European markets editor Mike Bird (@Birdyword)…

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M&G YouGov Inflation Expectations Survey – Q3 2015

One of the key objectives of modern monetary policy is to anchor inflation expectations, because managing inflation expectations is the first step to managing inflation.

The extent to which inflation expectations are anchored can have direct implications for the performance of inflation and the broader economy.

Where inflation expectations are not very well anchored, falling (or rising) inflati…

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UK inflation: are transient and volatile items masking an improving domestically generated inflation picture?

This morning CPI in the UK has fallen from 0.1% in July to 0% in August, both in year-over-year terms. Continuing deflationary trends observed in transport (largely petrol) and food (supermarket price wars), which have together taken 0.7% off CPI over the last year, were dragged back up to the zero bound by alcohol and tobacco (these always go up!), education and restaurants and hotels, with sm…

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What should the relationship be between index-linked bond yields and equity yields?

There ought to be a relationship between yields available on equities (earnings or dividend yields) and those on index-linked gilts and other inflation-linked bonds.  Ex-ante, and adjusted for risk, expected returns should be similar across asset classes.  In the case of equities and index-linked bonds, both asset classes give you exposure to “real” returns on both income and capital.  For inde…

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