Whilst economic forecasters are currently concerned about falling oil prices and the implications for global growth, weather forecasters worry about the impact an El Niño weather event could have on global weather patterns. In August, America’s National Oceanic and Atmospheric Administration (NOAA) said there is a 90% chance that the current Niño event will continue through the remainder of the…Read the article
The Bank of England’s Monetary Policy Committee (MPC) are due to meet on Thursday and most economists expect a dovish set of minutes to accompany the announcement of no change in the BoE base rate. Additionally, the minutes will likely emphasise the risks of a persistent undershoot in UK inflation given the continued fall in commodity prices and waning global demand. Despite these risks, the MP…Read the article
We have frequently written about investment grade (IG) credit spreads over the course of the past year. Today I’m going to dissect the IG universe further and take a look at quality spreads, i.e., the additional risk premium investors can earn when switching from one credit rating band into the next lower band.
The chart below shows how the differential in asset swap (ASW) spread between AA and…Read the article
On the 7th of September £38bn worth of UK gilts (4.75% 2015) will mature. The Bank of England (BoE) own just under half the issue, having purchased the bonds through its £375bn quantitative easing (QE) programme. At this point in time, the BoE have indicated that they are committed to keeping the size of the QE program at £375bn. As a result of the 2015 bonds maturing, the bank will therefore h…Read the article
We have seen a fairly swift and deep sell off in both commodities and emerging market equities over the past few months. The recent moves are now feeding through into a more broad-based sell off in risk assets. It appears an opportune time to take stock and see how exposed the various high yield markets are to these trends.
In order to assess any impact, I will firstly consider direct exposure,…Read the article
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
We recently highlighted a bond covenant that benefited fixed income investors. After the good, this week we have seen the bad. In this case, a bond covenant may impact bondholders in a detrimental way. Both examples are evidence of how critical it is to have a thorough understanding of bond documentation ahead of investing in a bond.
Kuwait’s third largest bank, Burgan Bank, announced in a regu…Read the article
How did the UK go from a manufacturing powerhouse in the 1950s, to economic destitution in the 1970s? Is the history of post-war UK economics one of policy mistake after policy mistake? And are Britain’s political and financial institutions better placed today to make good, long term decisions than they were in the past? In the latest of our series of interviews with authors of new economic …Read the article
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
U.S. high yield energy bonds have sold off recently, virtually reversing their Q1/Q2 rally. The main culprit is, again, oil prices. The recent re-re pricing in oil has led to energy bonds trading at levels worse than the last time oil sold-off at the beginning of 2015. In fact, the BAML U.S. high yield energy index this week reached its widest levels (in terms of spreads) since April 2009 at …Read the article