Tag Archives:

interest rates

The periphery-core financing gap has been gradually closing

SME financing in Europe – not out of the woods yet

In 2013 I blogged about how financing conditions had tightened aggressively for small and medium sized corporates (SMEs) in peripheral Europe. Three years later, we’ve seen the introduction of targeted longer-term refinancing operations, QE, negative deposit rates and other efforts towards creating a financially united, cohesive, European banking union. Now feels like a good time to revisit thi…

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Will the Bank of England’s latest banking sector policies promote lending to the real economy?

Guest contributor – Mark Robinson (Financial Institutions Analyst, M&G Fixed Income Team)

The Bank of England recently announced two new measures focussed on the banking sector, which are primarily designed to improve monetary policy transmission from banks to households and corporates and, indirectly, are probably intended to stimulate loan growth. In this blog post, I’ll examine these actions…

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Pre-exit, Brexit, what was it? Why the BoE should delay a change in monetary policy.

Post the Brexit referendum we are in an economic purgatory. The brexiteers are looking forward to a democratic led revitalisation of the economy, while the bremainers fear that the “little England” mentality will leave us isolated and depressed. Most people have an opinion, and the economic opinion that matters the most is that of the Bank of England (BoE). The market has absorbed the news of B…

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the us economy is not slowing down its getting close to full employment

The US economy is not slowing down, it’s getting close to full employment

We are a little bemused following the latest US Employment report. The headline figure of +38,000 jobs for May (expected: +160,000) disappointed the market, with Treasuries rallying and a June/July rate hike off the table in most economists’ views. A decline in the participation rate to 62.6% helped the unemployment rate fall to 4.7%, the lowest level since 2007, while average hourly earnings r…

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The unintended consequences of Negative Rate World Part II. An update.

At the start of April I wrote about some of the unintended consequences of central banks setting negative interest rates. I also promised to update the blog as we spotted more interesting implications, and asked readers to submit examples too.  Thanks for those who got in touch.  Here are some more of the interesting things that happen when the zero lower bound ceases to exist, as well as links…

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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 …

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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…

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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 …

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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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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…

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