Author profile

Richard Woolnough

Years in the bond markets: 33

Specialist subjects: Government and corporate bonds

Likes: Running, cycling

Heroes: Mohammed Ali, Winston Churchill

US long rates: is the giant anaconda about to turn?

The long-end of the US Treasury market has often been described as a giant anaconda: it draws little attention as it sleeps most of the time, but the minute it wakes up, everybody around shakes. US 30-year bonds don’t bite, but their moves can be as poisonous as they basically determine millions of mortgage rates, as well as the price that governments and companies around the world pay for debt…

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The reversal of Operation Twist and ramifications for the yield curve

The flattening of the yield curve is carefully watched by investors as it is traditionally a good indicator of an economic slowdown. However, we always need to question conventional wisdom, and one thing we can say about the great financial crisis, and the great financial recovery, is that the actions central banks have taken to meet their mandates has been quite different this time.

The Fed ha…

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Is this a turning point for bonds?

My view is that the US economy is nearer to overheating than slipping into recession. The strength of the US economy is typified by the labour market in many ways. To put some of this strength in context, look at the Challenger, Gray & Christmas Job Cut report. Last year (2017) produced an exceptionally low number of layoffs in nominal terms, and when adjusted to reflect the size of the labour …

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In a QE adjusted world, bond indices look very different

Investing in public securities, whether equity or debt, is driven by two primary desires; firstly a need to save for the future, and secondly the requirement to see these savings grow. This results in a need for investors to pursue low risk and high growth investments.  In order to understand these risks, assets get categorised based on their potential and historic risk characteristics. Broadly…

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Is it time for the Bank of England to sell corporate bonds back to the market?

On August 4th last year, the Bank of England announced a series of easing measures in response to the Brexit referendum results. They were very concerned regarding a potential slowdown and collapse in both the economy and corporate confidence and so implemented a variety of measures; reducing interest rates, increasing liquidity lines for banks, and reintroducing their gilt and corporate bond p…

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President Trump will be good for the transmission mechanism of animal spirits

The world will soon turn to the inauguration of Donald Trump. For at least the next four years, global investment markets will be focusing on his Presidency. This is always the case when a new President takes over the reins of the most economically powerful country in the world, but why does it feel more important this time?

Firstly, political deadlock has been broken. For the first time since …

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Unconventional interest rate tightening underway in the US economy

Last week, the Federal Open Market Committee (FOMC) decided that despite low unemployment and a sustained increase in breakeven inflation expectations since September, it was appropriate to maintain the Fed Funds rate between 0.25-0.50%. In trying to understand this action, and why the Fed is happy to wait until December to hike rates, a number of theories have been suggested by the financial c…

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With zero yields, the advantages of bonds over cash are gone

When investors buy or sell financial assets they try to analyse likely outcomes. This basically revolves around three main issues.

  1. What is the capital upside?
  1. What is the capital downside?
  1. What income is earned from the security?

The dramatic fall in bond yields means that this traditional approach to investing will have to be examined.

One way to do this is to model real world outcomes. …

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Pre-exit, Brexit, what was it? Why the BoE should delay a change in monetary policy.

Post the Brexit referendum we are in an economic purgatory. The brexiteers are looking forward to a democratic led revitalisation of the economy, while the bremainers fear that the “little England” mentality will leave us isolated and depressed. Most people have an opinion, and the economic opinion that matters the most is that of the Bank of England (BoE). The market has absorbed the news of B…

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Is QE unquestionably supportive for risk assets? I think not.

We have written about quantitative easing (QE) many times over the years, yet there remains more to be said: the great QE experiment is not yet over. Given the result of the EU referendum, speculation is rife as to whether the Bank of England will embark on another round of QE to stimulate the UK economy; arguably making this a good time to debate the efficacy of such strategies.

It’s safe to s…

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