What is the European Central Bank waiting for?

The ECB cut rates from 1.5% to 1.25% last week, taking the main rate to the lowest level since the ECB took control of monetary policy in 1999.  Markets had been expecting a rate cut to 1%, and rightly so. 

Everything seems to be deteriorating in Europe, almost without exception.  The euro is close to the strongest it has ever been versus a basket of foreign currencies, and this is killing exp…

Read the article

Frankly A Step Backwards (for the US)?

Yesterday the Financial Accounting Standards Board (FASB) has voted to ‘relax’ fair-value or mark-to-market accounting rules.  This is, in our view, a big step in the wrong direction. We believe that it has done this under huge pressure from politicians, lawmakers, and, particularly, financial institutions. In essence, the reversal means that companies will no longer have to value their assets …

Read the article

Stage 1 of QE over? Now the gilt purchases might start to get traction

 It’s still early days in the UK’s QE process, so the 7 data points we have from the gilt buyback programme to date are insufficient to draw too many conclusions from.  However, this chart does seem to show that participation in the reverse auctions has been declining.  The first 3 auctions had an average cover of 5.3 times – so for every gilt that the Bank bought back, there was over 5 times …

Read the article

Equitisation of bank capital bonds

Over the past week or so we have seen an interesting development in bank bonds as around a dozen institutions across the UK and Europe have announced that they are tendering for their subordinated debt. Essentially this means they are offering to buy their bonds back from investors. Bank sub debt is usually issued with call dates (typically after 10 years) when the issuer can either repay the b…

Read the article

'Old lady' invests in corporate bonds

Investors have been buying corporate bonds as a savings vehicle for a number of years in the UK, however yesterday they were joined by the oldest lady of them all –  the Bank of England. The BoE yesterday commenced its investment programme by buying £85.5 million of sterling corporate bonds.

The reasons why she is doing this are (1) to improve liquidity in the UK corporate bond market; (2) to r…

Read the article

Quantitative Easing and index-linked gilts – a little less information

Central bankers passionately love inflation-linked bonds.  Firstly, they keep governments honest by discouraging them from generating inflation in order to reduce their debts, and secondly they provide real “put your money where your mouth is” information as to where the financial markets think inflation is heading.  Unfortunately, the Bank of England’s new QE regime makes the information deriv…

Read the article

Bank Capital Securities: the new club 18-30

The somewhat bizarre title owes to the fact that euro and sterling bank tier one securities (the most subordinated and equity-like ones) are now priced roughly between 18 cents in the euro, or 18p and 30p in the pound! We have discussed these bonds at length in previous blogs (see the most recent comment from Jim here) and have outlined the reasons for their being a very high risk way of taking…

Read the article

The gilt market – QE as it happens, followed by an update this afternoon when the results of the £2 billion bond purchase are released

Today we get to see how the Bank of England’s Quantitative Easing process works.  I will post again, in the comments section of this article, when we know the results of the Bank’s gilt buy back this afternoon (sometime after 2.45 pm).  This is a £75 billion programme, with the first £2 billion of puchases being sought in gilts maturing from 2014 to 2018.  These are as follows:

UKT 5% 2014
UKT …

Read the article

Finally – The Penny (or 'Cent') Drops

The European Central Bank cut its main re-financing rate last week by 50 basis points to 1.50%.  It is continuing to ease monetary policy into uncharted waters. Jean Claude Trichet conceded that the ECB staff’s projections for a recovery in 2009 were way too optimistic and now envisage only a “gradual recovery” – in fact, the ECB now expects flat growth in 2010 and a negative GDP print of somew…

Read the article

QE – quite extraordinary.

WOW. QE begins in earnest in the UK tomorrow, and is being done because conventional monetary policy has reached its limit (see previous blog article). QE involves swapping cash, issued by the Bank of England, for financial assets. The process of exchanging newly printed bank notes for assets that are then retained by the BoE forces excess sterling into the economy, and in theory, this increase…

Read the article