The hot money has flown south to Australia for the winter, but will it fly back in the summer?

On Friday we had a Dumb and Dumber moment in the office when a colleague for a few seconds thought that Australia had lost its AAA rating.   The error was quickly realised (it was Austria that was downgraded) and Australia kept its AAA rating across the board that it has had with Moody’s and S&P since 2002 and 2003 respectively (although Fitch only upgraded Australia’s foreign currency rating t…

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Für einen deutlich schwächeren Euro müssten die Renditen auf deutsche Staatsanleihen sehr weit in negatives Terrain fallen. Das könnte leicht passieren.

This post was originally published on 11.01.12 in English and has been translated for our German readers.

2011 hat der Euro gegenüber dem US-Dollar 3,2% verloren. Nach allem, was 2011 in Europa passiert ist, sind viele überrascht, dass der Euro nicht schwächer abgeschnitten hat. Zahlreiche Kommentatoren rechnen für 2012 mit einer deutlichen Schwächung des Euro.

Wie es bei Wechselkursen meistens…

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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

In 2011 the euro underperformed the US dollar by 3.2%.  Given everything that’s occurred in Europe, many people have been surprised that the euro has not been weaker, and numerous commentators continue to call for a much weaker euro in this calendar year.

As usual with FX rates, most of the euro’s behaviour versus the US dollar can be explained by changes in expectations of short term interest …

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France now yields more than EFSF. Hmm

France has started wobbling again recently.  France 10 year government bond yield spreads over Germany have blown out from just under 100 basis points at the beginning of December to 150 basis points today, although this is still a bit below the wides of 190bps in mid November.   Maybe people have woken up to the likelihood of France losing its AAA status, or the probability that France is goin…

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The US: living in a lower population growth environment

The 2000s were the slowest decade of population growth in the US since the Great Depression. The first set of state population counts for 2011 revealed that there has been no change to this trend. The US experienced the lowest annual population growth rate in 2010-11 since 1945.

William H. Frey concludes that the weak labour market in the US appears to have slowed down immigration to the US and…

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Happy Hogmanay – would an independent Scotland still be rated AAA? And might the rest of the UK get downgraded too?

Happy Hogmanay – an independent Scotland looks AAA on the back of an envelope (as long as it gets all of the oil and none of the banks!), but would probably get rated lower.  UK to get downgraded on uncertainty?

We’ve obviously been thinking a lot about the break-ups of currency areas lately, and it got us thinking about an Optimum Currency Area closer to home.  What would happen if the UK brok…

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European High Yield vs. Eurozone Tail Risk High Yield

As Eurozone concerns have dominated risk appetite within the market this year, a key question that faces many market participants is how to capture some of the attractive risk premiums that this weakness creates without exposing themselves unduly to the significant “tail risks” of a full blown Euro death spiral.

In this vein, a popular trade in recent months has been to add exposure to the US h…

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Explaining low government bond yields (follow up) – maybe it’s not just about Europe, it’s about China too

Yesterday I wrote a comment about how US Treasuries seemed to have decoupled from US economic data, and decided that it must be all about Europe (see here).  That could have been a slightly hasty conclusion.

Having spent the last few minutes messing around with Treasury correlations, I was surprised to find just how closely correlated US Treasury yields have been with Chinese equities since the…

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Desert Island Discs – what the bond team will be taking to the BBC radio studios, should we get the nod.

Without further comment, we give you the eight songs that each of the team would take to a desert island.  In keeping with the spirit of the radio show, we have also given them the Complete Works of the Smiths, and a copy of Keynes’s General Theory of Employment, Interest and Money.

Stefan Isaacs
Pearl Jam – Alive
Foo Fighters – Pretender
White Stripes – Seven Nation Army
Beatles – Hey Jude

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A chart that may make you nervous if you’re long of government bonds

Government bond investing used to be about analysing and assessing economic data.  Judging by the last few months, not any more.

At the beginning of June, I argued here that US economic data was a horror show and was falling off a cliff, and bond investors (and risk assets generally) seemed not to have noticed.   The chart I posted back in June stoked quite a bit of reaction, with the main poin…

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