UK housing : firm foundations, or a rally built on sand?

Recent data releases in the UK have been interpreted as suggesting that the housing market may be showing signs of some form of recovery. Our interpretation, though, would be that the releases suggest merely that the pace of decline is slowing. On top of this important difference in interpretation, we would like to highlight the risk of a potential further turn down in housing market data.

In …

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How about a savings account with an interest rate of minus 4%?

Some interesting ideas about how Japan (and by extension the rest of us) can get out of the deflation trap in today’s Times.  The article, "To fight deflation, abolish cash", proposes that getting rid of physical money will allow policy makers to do something not possible in a world where the population can hoard bundles of bank notes in sock drawers – namely to set an effective negative nomina…

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Government indebtedness – we ain’t seen nothing yet

Longevity risk and pension fund deficits aren’t exactly new topics – one of the first ever comments on this blog was on precisely this subject (see here).  But it’s going to become a bigger and bigger issue over the coming years, and this has huge implications for both bond investors and for the global economy as a whole.  Last week the IMF made an important contribution to the debate with this…

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BoE: we can "rule out the hypothesis that most households expect inflation to return to target in the year ahead".

Today we saw the release of May’s inflation data, which came in a little higher than the market expected.  CPI is running at 2.2% on an annual basis, and RPI remains in deflation, at -1.1%.  Food and energy prices continue to be disinflationary factors, whilst the prices of DVDs, TVs, clothing and footwear rose.  There was a rise in average mortgage payments too, which impacted the RPI number, …

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Stirrings in the European high yield primary market

We’ve talked about new issuance a few times recently on this blog (see Matthew’s blog from December here and my more recent comment about the record issuance in Q1 here). But the focus has been firmly on issuance in the investment grade market, until now.

The European public high yield primary market was essentially closed for 18 months, with no new issues at all from August 2007 until January …

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"Fire, Fire in Noah’s Flood’ – are we right to be scared about inflation?

Right now the most commonly submitted question to this blog is about the impact of QE, high budget deficits and zero rates on inflation.  Most people are inclined to think that after a brief period of deflation, largely as a result of lower year on year energy prices, we’re heading into hyperinflation.  I guess my cop out answer to that question is that we just don’t know – it is uncharted terr…

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Bradford & Bingley skip bond coupons – is this legal?

We’ve had a question from a reader of this blog about yesterday’s announcement that Bradford & Bingley will be skipping coupon payments on some of its bonds and whether this constitutes an event of default.

Actually it doesn’t, and why not?  Well, because HMT says so…

Back in February the government made changes to the terms of its nationalisation of B&B, using power it gave itself under the ne…

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Reaction to S&P putting UK sovereign debt on negative outlook

This morning S&P announced that the outlook on UK’s long term sovereign credit rating was put on negative outlook.  It’s important to stress that a change in rating outlook does not mean that a downgrade to AA is inevitable, but obviously the risk has increased (S&P say the chance is “one in three”). The primary reason for the change was that the “UK’s net general government debt may approach 1…

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Are corporate bonds still attractive following the rally?

In the worst of the Great Depression, US BBB spreads peaked at 724 basis points (see chart).  Then in Q4 last year, extreme risk aversion and a huge number of distressed sellers meant that credit markets collapsed.  On December 16 2008, soon after we last produced the chart on this blog (see here), US BBB spreads peaked at a 76 year record of 804 basis points.

This year has seen a big bounce …

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QE or not QE? That is the question

Whether you want to call it quantitative easing, credit easing, printing money or “enhanced credit support” as Jean Claude Trichet prefers, the ECB yesterday took a step in that direction. At the post rate decision press conference, Trichet announced that they had agreed in principle to purchase up to €60bn of euro-denominatedcovered bonds, which is roughly 10% of the public market. He said tha…

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