UK 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…

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Two charts for anyone who still believes in ‘decoupling’

Q2 was a grim quarter, not just for the Eurozone economy but for the global economy. The downturn in Citigroup’s economic surprise indices that began in March picked up speed through to June, while PMIs in almost all corners of the world weakened in Q2 as can be seen by the PMI heatmap.

The good news is that the authorities have begun to respond to the downturn with more stimulus (as seen by ye…

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Competition: win David Graeber’s “Debt: the First 5000 Years”

I’ve not read David Graeber’s “Debt: the First 5000 Years” yet – an anthropological investigation into the origins of money and debt – but have had it highly recommended to me and the reviews on Amazon suggest it’s a staggering original work. So I’ve bought a job lot for the team, and 10 extras for you to win in today’s competition.

Question: Denmark yesterday cut official interest rates on its…

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US – a video from Chicago. Research trip on the US High Yield market

I recently returned from Chicago after a research trip. We put together a short video to share a few of our findings with the wider world. The mood of most economists, investors and indeed the man on the street was noticeably more upbeat than in Europe. With positive GDP growth, a housing market showing the first signs of stabilisation, if not growth, and – in our opinion – a banking system tha…

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Why does UK government guaranteed Network Rail keep issuing debt in its own name – and at a higher cost?

Network Rail, the organisation that owns and manages the UK’s rail infrastructure, has just issued more of three tranches of its index-linked corporate bonds.  These bonds are, like all of Network Rail’s debt, rated AAA and fully guaranteed by the UK government (the business was effectively nationalised in 2002 having bought Railtrack out of administration) .  These bonds were issued with sprea…

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The UK’s AAA rating looks increasingly vulnerable. Growth negative, borrowing up. It might not matter though.

On 14th February this year, Moody’s put the UK’s AAA credit rating on negative outlook.  This means that the agency says there is a 30% chance of the UK being downgraded within the next 18 months (i.e. by mid 2013).  A month later, Fitch moved the UK’s AAA rating to negative too – for them this means a slightly greater than 50% chance that there is a downgrade within the next two years.  At the…

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Lonesome George (Osborne) should get rid of one and two penny coins

Some sad news has reached us on the bond desk. Lonesome George, a giant tortoise that lived in the Galapagos Islands, has died. Lonesome George was known as the rarest creature in the world because he was the last known individual from his subspecies. Which is kind of relevant, as today’s blog will be covering another endangered species – one penny and two pence coins.

It was announced earlier …

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Should Europe let the single currency go to save the Union?

Today is the day on which football is going to meet the Eurozone crisis when Germany and Greece compete in the Euro Cup’s quarterfinal. Spectators will be watching closely any gestures by Angela Merkel sitting in the stadium next to other political and executive representatives, any behaviour (and banners) of both team’s supporters inside and outside of the stadium, and any appearance and words…

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German government bond yields may need to get very negative for the euro to weaken much further. And it could easily happen (update)

In January I argued that negative German government bond yields would be a rational response to the rising probability that the euro breaks up and Germany reintroduces the Deutsche Mark (see here).  This was because German government bonds have significant optionality.  Assume that the Eurozone is forced to reintroduce national currencies – if you are living in Spain, then a German government b…

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Americans are inconsistent in how they believe the budget deficit should be tackled. But growing signs of pragmatism?

It looks as if we might see a repeat of 2011’s brinkmanship regarding the US budget – remember that this game of chicken between the Republicans and Democrats was a contributory factor to S&P downgrading the US from AAA.  Few expect American politicians to make progress on debt matters until after November’s elections – but that doesn’t leave them long to prevent many automatic cuts to spending…

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