Author profile

Ben Lord

Years in the bond markets: 15

Specialist subjects: Corporate bonds, inflation markets, financial institutions and credit default swaps

Likes: Almost all sport (not sure about dressage), Saturdays, cooking

Heroes: Ron Burgundy, Superman, P.G. Wodehouse

UK CPI continues to overshoot the target

CPI now 2.9% up from 2.6% last month, above expectations and overshooting the Bank of England forecast

UK CPI is now within a hair’s breadth of requiring a letter to the Chancellor. RPI increased to 3.9% from 3.6%, which was also above expectations. The increased fuel prices were expected this month, but August is also a high inflation month given transport price hikes that take place as people head away for their holidays, and as clothing and footwear prices are hiked with the new season’s coll…

Read the article

Debt ceiling tremors in the Treasury market

The United States is fast approaching the point at which its indebtedness reaches its debt limit, which generally is approved by Congress without debate. Routinely in the past the debt ceiling would be raised, reflecting that it does not affect the amount of spending, but only makes sure the U.S. can pay for spending it is committed to whether by tax receipts or by borrowing. It is about ensuri…

Read the article

A problem with U.S. average hourly earnings, and why it may be understating the true picture

The last time the US had an unemployment rate below 5% and inflation expectations around 2%, the Fed funds rate was above 5% and had been aggressively hiked in the preceding period. Yellen’s Fed has been happy to let rates stay low amongst a tight and tightening labour market because wage growth has been lower than one would expect for a jobs market as healthy as this one. So, slow growth of wa…

Read the article

CPI wHat?

In the UK, as of next month the official measure of consumer prices will become CPIH, with the H standing for housing.  As at today, the only difference between CPI and CPIH is the inclusion of owner-occupied housing in the latter, on a rental equivalence basis (“how much would it cost to rent the home I own?”, a similar measure to the Owners’ Equivalent Rent component of US CPI), which has a w…

Read the article

Five observations about Inflation

1. We are at the point of peak oil pass through: January and February 2016 saw oil prices reach their lows ($34.25 Brent January 20th and $26.21 WTI, February 11th), so this week’s inflation numbers will see some high year-on-year oil price base effects, as will February’s. This is one of the main reasons why we have been seeing significant rises in inflation in recent months.

2. The upward mar…

Read the article

Mortgages and monetary policy in the US and UK

The cost of new mortgage borrowing and payments on outstanding household debt can have a large impact on the rate of growth of an economy. For this reason, central bankers are interested in the transmission mechanism of monetary policy. It has been shown that interest rates can have a stronger influence on an economy where there are a high proportion of variable rather than fixed-rate mortgages…

Read the article

Tantrums and tidbits: Government bond market déjà vu

I have been overwhelmed by a sense of déjà vu of late. Talk of rates not rising again this cycle (US), ever again (Europe), or even being cut even further (UK, Japan) prevails. Quantitative easing continues apace and could be set to broaden further, be that in its duration or via the inclusion of new types of assets. Economic growth appears to be stalling, corporate profitability is showing lat…

Read the article

The BoE and ECB render the US bond market the only game in town

Now that the Bank of England has commenced purchases of gilts and committed to a programme of corporate bond buybacks, alongside similar measures being presently undertaken by the ECB, it is worth taking a step back and thinking about valuations in sterling fixed income.

Let’s take a brief look at what has happened so far in 2016 in government bonds. The ultra-long conventional gilt has returne…

Read the article
Real gilt yields have outperformed

The rise in UK inflation expectations since Brexit

I wrote ahead of the UK referendum that I felt front end index-linked bonds were a good way to play the uncertainty surrounding the result, given the fact that they have crucial non-binary hedge characteristics. Since the result, breakevens (i.e. the market’s expectation of future inflation) have behaved exactly as expected, rallying. The chart below shows how nominal yields have collapsed to r…

Read the article

What I am doing to protect against Brexit… or Bremain.

Over the last few days and weeks, as the odds of a vote to leave in the referendum have moved from a remote possibility to somewhat less so, market participants have spent more and more time wondering about how they are positioned going into the vote, relative to their benchmark, their peer group, or their risk budget. The significant moves that we have seen in recent trading sessions show pret…

Read the article