Tag Archives:

interest rates

Three reasons why the UK will not raise rates anytime soon

With the Fed recently raising its interest rates via a unanimous vote, I’ve been wondering whether the UK will shortly follow suit. The market seems to think not, pricing in the first UK rate rise in Q1 of 2017, compared to two further US rate hikes in 2016. At face value this huge divergence feels strange; both countries are targeting (and undershooting) a 2% inflation rate, both have similar …

Read the article

Chicago research trip video: Tight labour markets and crisis-like corporate bond valuations

It has been a while since we last uploaded a video from one of our U.S. research trips. The question we asked in March as to whether the Fed would hike interest rates this year or not has still not been conclusively answered. Although a 2015 hike is not completely off the table, as we are entering the final two months of the year it seems a lot less likely than it did back then. Nonetheless, fr…

Read the article
Robotisation rates are correlated with demographics

“We need to hike…so that we have room to cut if we need to”. Eh? And some robot stuff too.

I keep hearing the argument that the Fed needs to hike, so that if the US economy slows down again it will have room to cut rates once more.  In other words it needs to get away from the zero bound so that the traditional monetary policy tool of rate cutting comes back into play in the future.  In less cerebral moments I may have made this argument myself, but I’m struggling to remember why it …

Read the article

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…

Read the article
Slide1

Why have bonds sold off – and why did they even rally in the first place?

Ben Bernanke has spent a good deal of time explaining on his blog why he thinks interest rates are so low (something that Martin Wolf wrote a column on earlier this week).  An extremely quick and dirty summary is low nominal interest rates and yields can be explained by low inflation, however this doesn’t explain why real interest rates are also low.  Bernanke doesn’t think low real interest ra…

Read the article
2015-05-blog-AD

Negative interest rates in European ABS

Negative interest rates have become increasingly prevalent in Europe owing to the expansionary monetary policy measures with a number of central banks implementing negative base rates (Switzerland, and Sweden). Two weeks ago 3 month Euribor, (the reference rate for the majority of Pan-European Asset-Backed Securities (ABS)), followed 1 month Euribor (largely the preserve of most European Auto A…

Read the article
LGtcj_frame_25

Video: Jim & Mike go to NY to ask the big question. Will the Fed hike in 2015?

Have you seen the film The Day After Tomorrow? The one where U.N. officials foolishly ignore climate scientist Jack Hall (Dennis Quaid) and a super-storm plunges New York into a new Ice Age? Well it was colder than that last week when Mike and I made a research visit over there. With wind-chill it was a billion below. I was only able to survive by laughing at Mike forgetting to wear a hat and g…

Read the article

The zero bound debate – are negative rates a tightening of policy?

Matt’s and James’s recent blogs outlined some of the issues markets face when rates go negative. This is obviously no longer just a theoretical debate, but has real investment implications. Why do investors accept sub-zero rates when they can hold cash ?

To recap using Swiss Francs for example, it makes sense for a saver from a purely economic view not to deposit a Swiss Franc note into a negat…

Read the article
UK QE and asset prices

Conservative QE and the zero bound.

It has been a while since we talked about QE, but we covered this substantially in the past (see for example ‘Sub Zero?’,  ‘QE – quite extraordinary‘ and ‘Quantitative easing – walking on custard‘). It now appears, at least for the time being, to be a part of monetary history in the UK, and more recently the US. However, it is being reapplied in Japan and about to do a grand tour of Europe. Our…

Read the article

A tool for a rising rate environment: high yield floating rate notes

We are entering a new era for interest rates in the developed world. The extended period of ever looser monetary policy is starting to draw to a close. In the wake of the tapering of quantitative easing (QE) from the Federal Reserve (Fed), investors now expect to see the first interest rate hikes in many years, initially in the UK and shortly afterwards in the US. The principal focus of the deb…

Read the article