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 …

Read the article

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…

Read the article

New issuance hits record levels

We commented in November that growing levels of new issuance suggested that there were cracks in the ice in credit markets.  This trend has rapidly accelerated.  In the first quarter of this year, there was over €115bn of new issuance from corporates, almost twice as big as the previous record from 2001 and only slightly less than the €133bn figure for the whole of 2008. 

Why has there been so…

Read the article

Horrific European economic data released

Spain is already in deflation, and this morning it released some horrible unemployment numbers.  Spanish unemployment soared to 17.4% in Q1, from 13.9% in Q4.  This is the first time unemployment has risen above 17% since 1998, and is further evidence of the alarming deterioration in the European economy. 

Also this morning it was announced that UK GDP was -1.9% in Q1, taking the year on year …

Read the article

What effect will the surge of government bond issuance have on government bond returns?

This is a question that numerous clients and members of the press have asked us so I thought it would be worth writing a brief comment here. 

Focusing on the UK, in yesterday’s budget, chancellor Alistair Darling said that gross gilt issuance will be £220bn this financial year, which is easily a record. There is much speculation as to whether the market is able to digest this much issuance.  If…

Read the article

Monetary Forbearance, and the threat of a double dip financial crisis

With first quarter results out of Wells Fargo, JP Morgan and Citigroup this week in the US, and Barclays over here, you might be forgiven for starting to think that the financial crisis is well along the bumpy transition to the next phase, ie a global ‘real economy’ crisis. To some extent, I think we’d have to agree. We have come a long way from the week that Lehman went, when it felt like AIG …

Read the article

US in deflation for first time since 1955

Some interesting numbers came out of the US yesterday.  US CPI was -0.1% in March, below expectations of +0.1%.  This means that US CPI was -0.4% versus a year earlier, the first time there’s been a negative reading in over 50 years (see chart). 

(It’s important to stress that I’m quoting the broad measure of CPI, which is including food and energy costs – the Federal Reserve, unlike the ECB …

Read the article

ECB – let’s get ready to rumble!

It’s all getting rather interesting at the ECB. Facing a rapidly deteriorating economy and the prospect of deflation, the governing council are at odds on the best way to deal with the crisis.

Fighting out of the blue corner, the German duo of Axel Webber and Jurgen Stark argue that cutting rates further and/or embarking on quantitative easing (QE) in a US/UK style would have little positive im…

Read the article

George Osborne, UK Shadow Chancellor, to change inflation target?

In a speech this morning, the Shadow Chancellor George Osborne hinted that he might change the UK’s inflation target if the Tories form the next Government (and it’s difficult to see how they can muck it up from here).  Currently the Bank of England must set monetary policy to keep CPI inflation within the band 1% to 3%, and must write a letter to the Chancellor in the event of "missing".  Wit…

Read the article

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